Exercise-1 (Unit product cost under variable and absorption costing)

By: Rashid Javed | Updated on: July 12th, 2023

Super Bike Manufacturing Company presents the following data for year 2022:

  • Opening inventory: 0 Units
  • Sales: 8,000 Units
  • Production: 10,000 Units
  • Closing inventory: 2,000 Units
  • Direct materials: $240
  • Direct labor: $280
  • Variable manufacturing overhead expenses: $100
  • Variable selling and administrative expenses: $40
  • Fixed manufacturing overhead expenses: $1200,000
  • Fixed selling and administrative expenses: $800,000

Required: Using the data given above, compute the unit product cost of one bike under:

  1. absorption costing system.
  2. variable costing system.


Computation of unit product cost:

Computation of unit product cost

*1,200,000 / 10,000 = $120

The cost to manufacture one bike is $740 under absorption costing system and $620 under variable costing system.

Notice that the fixed manufacturing overhead cost has not been included while computing the cost of one bike under variable costing system.

Note for students: Selling and administrative expenses (both variable and fixed) are not relevant for the computation of unit product cost.

One Comment on Exercise-1 (Unit product cost under variable and absorption costing)
  1. sheba

    hey when calculating for variable overhead is it not cost over unit? it so why is the answer not 0.01 instead of 100

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