Under absorption costing, a company had the following per unit costs when 10,000 units were produced.
Direct labor………………………………. $2
Direct material…………………………… 3
Variable overhead………………………... 4
Total variable cost………………………... 9
Fixed overhead ($50,000/10,000 units)….. 5
Total production cost per unit………….. $14
1. Compute the company’s total production cost per unit if 25,000 units had been produced.
2. Why might a manager of a company using absorption costing produce more units than can currently be sold?