C-Cubed makes bikes. It's standard bike is called the Speed Racer. C-Cubed's relevant range of production for the Speed Racer is 300 to 400 units. It sells the Speed Racer for $750. When it produces andsells 300 units, its average costs per unit are as follows:Direct Materials$75Direct Labor$50Variable Manufacturing Overhead $40Fixed Manufacturing OverheadFixed Selling ExpenseFixed Administrative ExpenseSales CommissionsVariable Administrative ExpenseAssume C-Cubed uses Absorption Costing. What is the total amount of product costs incurred to make 375 units?$60$35$20$25$15Multiple Choice$80,475$79,875$61,875$84,375

Answered: C-Cubed makes bikes. It's standard bike…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 6PB: Box Springs. Inc., makes two sizes of box springs: queen and king. The direct material for the queen...

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C-Cubed makes bikes. It's standard bike is called the Speed Racer. C-Cubed's relevant range of production for the Speed Racer is 300 to 400 units. It sells the Speed Racer for $750. When it produces and
sells 300 units, its average costs per unit are as follows:
Direct Materials
$75
Direct Labor
$50
Variable Manufacturing Overhead $40
Fixed Manufacturing Overhead
Fixed Selling Expense
Fixed Administrative Expense
Sales Commissions
Variable Administrative Expense
Assume C-Cubed uses Absorption Costing. What is the total amount of product costs incurred to make 375 units?
$60
$35
$20
$25
$15
Multiple Choice
$80,475
$79,875
$61,875
$84,375

Expert Solution

Step 1 Introduction

Absorption costing includes all the cost incurred for production that is variable cost as well as fixed cost.

Step 2 Calculation

Average cost per unit to produce 300 units

Direct materials	$75
Direct labor	$50
Variable manufacturing expenses	$40
Fixed manufacturing overhead	$60

Cost to produce 375 units

Particulars	Amt ($)
Direct materials ($75 * 375)	28,125
Direct Labor ($50 * 375)	18,750
Variable manufacturing overhead ($40 * 375)	15,000
Fixed manufacturing overhead ($60 * 300)	18,000
Total amount of production cost	79,875

Note: Fixed manufacturing overhead remains the same, it does not change with change in unit production , so it is calculated on the basis of 300 units as fixed cost was distributed across 300 units earlier and it will remain same for 375 units.

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