Problem:
Your CFO attended an industry trade show and looked forward to sitting through one of the seminars offered that was titled "Why is it so important to know your product's costs?" Unfortunately, she missed this seminar. This is a very important topic that you plan to discuss with her yourself.
Prepare notes for your meeting with the CFO that includes the following:
How will the components of unit product costs be different if she uses absorption costing versus variable costing? Include your calculations.
Using the following company data, determine unit product costs under absorption and variable costing, and show your calculations:
Planned units produced in the year
10,000
Direct labor/unit
$200
Direct material/unit
$2,000
Variable manufacturing overhead/unit
$400
Variable SG&A/unit
$200
Fixed manufacturing overhead/year
$2,000,000
Fixed SG&A
$500,000