The Pacific Company manufactures a single product. The following data relate to the year just completed:

Variable cost per unit
      Production $43
    Selling and Administrative $15
Fixed Costs in Total
   Production $145,000
   Selling and Administrative $95,000

During the year, 5,000 units were produced and 4,800 units were sold. There were no beginning inventories.

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

Question

The Pacific Company manufactures a single product. The following data relate to the year just completed:

Variable cost per unit	
      Production	  $43
      Selling and Administrative	  $15
Fixed Costs in Total	
     Production	$145,000
     Selling and Administrative	$95,000

During the year, 5,000 units were produced and 4,800 units were sold. There were no beginning inventories.

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

BlackTom AI · Accepted Answer

Absorption costing includes all manufacturing costs (both variable and fixed) in the unit product cost. Selling and administrative costs are treated as period costs and are not included in product cost.

1) Relevant knowledge points and concepts
- Under absorption costing, unit product cost = variable manufacturing cost per unit + allocated fixed manufacturing overhead per unit.
- Selling and administrative (S&A) costs—both variable and fixed—are expensed in the period and are not part of product cost.
- Fixed manufacturing overhead is allocated based on units produced (not units sold).

2) Step-by-step reasoning
- Start with the given variable production cost per unit: $43.
- Compute fixed production (manufacturing overhead) per unit by dividing total fixed production overhead by units produced.

3) Calculations with intermediate steps
- Total fixed production overhead = $145,000
- Units produced = 5,000
- Fixed production overhead per unit = $145,000 ÷ 5,000 = $29.00
- Unit product cost under absorption costing = variable production cost per unit + fixed production overhead per unit
- = $43 + $29 = $72

4) Why the correct answer is correct
- The calculation directly follows absorption costing rules: both the $43 variable production cost and the allocated $29 fixed production overhead are included in the product cost, giving $72 per unit.
- S&A costs ($15 variable per unit and $95,000 fixed) are not included in product cost under absorption costing, so they are excluded.

5) Why other multiple-choice options are incorrect
- 91: Equals $43 + $29 + $19; this wrongly adds fixed S&A per unit (95,000/5,000 = $19), but fixed S&A is a period cost, not product cost.
- 58: Equals $43 + $15; this wrongly includes variable S&A in product cost (S&A are period costs).
- 43: Includes only variable manufacturing cost, omitting allocated fixed manufacturing overhead (incorrect for absorption costing).
- None of the above: incorrect because one of the given choices (72) is correct.

6) Conclusion
The correct unit product cost under absorption costing is $72, which matches the provided answer.

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