OMS Manufacturing expects to produce and sell 12000 units of Big, its only product, for $20 each. Direct material cost is $3 per unit, direct labor cost is $10 per unit, and variable manufacturing overhead is $6 per unit. Fixed manufacturing overhead is $24,000 in total. Variable selling and administrative expenses of $1 per unit and fixed selling and administrative expenses are $3,000 in total. According to generally accepted accounting principles, inventoriable cost per unit of Big would be

Inventory cost per unit of Big would be $21.

Explanation:

According to generally accepted accounting principles, inventory cost per unit of products is the total manufacturing cost of that product divided by the unit of that product produced. The total manufacturing cost are cost that are directly related to the production of the product. Therefore, selling and distribution expenses are not part of the total manufacturing cost.

Based on the above, the inventory cost per unit of Big can be calculated as follows:

Total direct material cost = 12,000 × $3 = $36,000  

Total direct labor cost = 12,000 × $10 = $120,000

Total variable manufacturing overhead = 12,000 × $6 = $72,000

Total variable manufacturing cost =  36,000 + 120,000  + 72,000  = $228,000

Fixed manufacturing overhead = $24,000

Total manufacturing cost = $228,000 + $24,000 = $252,000

Inventory cost per unit = $252,000 ÷ 12,000 = 21 per unit.

Therefore, of inventory cost per unit of Big would be $21.

$21.00 per unit

Explanation:

Direct material cost 3

Direct labour cost 10

Variable

manufacturing 6

overhead

Fixed manufacturing

overhead

(24000/12000) 2

Inventory cost per unit

3 + 10 + 6 + 2 = $21.00 per unit

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