Lily's Pastries produces cupcakes, which sell for $5.10 each. During the current month, Lily produced 3200 cupcakes, but only sold 2700 cupcakes. The variable cost per cupcake was $3.40 and the sales commission per cupcake was $0.50. Total fixed manufacturing costs were $1700 and total fixed marketing and administrative costs were $900. What is the product cost per cupcake under absorption costing?

Unitary cost = $3.92

Explanation:

Giving the following information:

Lily produced 3200 cupcakes.

The variable cost per cupcake was $3.40.

Total fixed manufacturing costs were $1700

Under the absorption costing method, the unitary product cost is calculated using the variable cost and the fixed manufacturing costs.

Unitary cost = unitary variable cost + unitary fixed overhead

Unitary cost = 3.4 + 1,700/3,200 = $3.92

Answer: $3.93

Explanation:

Given the following

Variable cost per unit = $3.40

Fixed manufacturing cost = $1700

Total Units produced=3200

Uaing absorption costing which incorporates the cost of fixed manufacturing cost of goods in the unit price of goods.

Absorption costing per unit = Variable cost per unit + fixed cost per unit

Variable cost per unit = $3.40

Fixed cost per unit = (Total manufacturing cost : Total unit produced)

Fixed cost per unit = $1700 : 3200 = $0.53

Absorption costing per unit = $3.40 + $0.53 = $3.93