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Last month the opening inventory was 6,000 units and the closing inventory was 4,000 units. Using absorption costing, this closing inventory was valued at 50,000 and using absorption costing it was $41,000.
What was the variable production cost per unit last month?
Correct Answer: D — $3.75
Explanation:
Correct Answer: D
Explanation:
Step 1 — Inventory value per unit (absorption costing):
33,000 / 4,000 = $8.25 per unit
This includes both variable and fixed costs.
Step 2 — Difference in profit between marginal and absorption costing:
Marginal costing profit - Absorption costing profit = 41,000 = $9,000
This difference arises because inventory decreased by 2,000 units (6,000 - 4,000), meaning more fixed cost was released under marginal costing.
Step 3 — Fixed cost per unit:
4.50 per unit
Step 4 — Variable cost per unit:
4.50 = $3.75 per unit