Bateman Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price
$117

Units in beginning inventory
0

Units produced
4,700

Units sold
4,400

Units in ending inventory
300

Variable costs per unit:

Direct materials
$36

Direct labour
$38

Variable manufacturing overhead
$4

Variable selling and administrative
$11

Fixed costs:

Fixed manufacturing overhead
$89,300

Fixed selling and administrative
$26,400

What was the unit product cost for the month under absorption costing?

Question

Bateman Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price
$117

Units in beginning inventory
0

Units produced
4,700

Units sold
4,400

Units in ending inventory
300

Variable costs per unit:

Direct materials
$36

Direct labour
$38

Variable manufacturing overhead
$4

Variable selling and administrative
$11

Fixed costs:

Fixed manufacturing overhead
$89,300

Fixed selling and administrative
$26,400

What was the unit product cost for the month under absorption costing?

BlackTom AI · Accepted Answer

Step-by-step reasoning for each option and the underlying calculation:
Option 1: $78
- This equals the sum of variable manufacturing costs per unit (DM 36 + DL 38 + variable MOH 4 = 78). Absorption costing, however, also assigns fixed manufacturing overhead to each unit produced, so excluding fixed overhead would understate the cost per unit under absorption costing.
Option 2: $89
- $89 corresponds to the fixed manufacturing overhead allocated per unit if you mistakenly treat the fixed MOH as a per-unit fixed charge without adding variable manufacturing costs. Under absorption costing you must include both variable manufacturing costs per unit and the fixed MOH allocated per unit, not just the fixed portion.
Option 3: $108
- This total implies adding some amount to 78 (the variable per-unit cost) that is not consistent with the data. Specifically, $108 would require an added $30 per unit, which does not align with the provided fixed MOH allocation per unit (which is 89,300 / 4,700 = 19). Hence this option doubles the per-unit fixed cost inappropriately.
Option 4: $97
- Start with the variable manufacturing cost per unit: DM 36 + DL 38 + variable MOH 4 = 78. Then compute the fixed manufacturing overhead allocated per unit: 89,300 fixed MOH divided by 4,700 units produced = 19 per unit. Add these together: 78 + 19 = 97. This matches the absorption costing approach, where both variable manufacturing costs and allocated fixed manufacturing overhead per unit are included in the unit cost.
Additional clarification:
- Absorption costing assigns all manufacturing costs (both variable and fixed) to the units produced. The fixed manufacturing overhead is spread over the number of units produced, not the units sold, which is why we use units produced (4,700) for the allocation base in this calculation.
- The beginning and ending inventories are relevant for how many units were produced and how the fixed MOH is allocated per unit, but the per-unit absorption cost is solely determined by the costs per unit produced and the fixed MOH allocation per unit, not by units sold in the period.
- Therefore, the per-unit product cost under absorption costing is 97 dollars. The options reflect common mistakes such as excluding fixed overhead, misapplying the fixed overhead, or inadvertently adding an incorrect amount to the variable cost. The correct composition is the sum of the variable manufacturing cost per unit (78) and the fixed manufacturing overhead per unit (19), totaling 97.

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