Which of the following is considered in the calculation of unit cost under absorption costing?

• A. Direct materials and direct labor only
• B. Direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead
• C. Selling and administrative expenses
• D. Variable manufacturing overhead only

Answer: (B)

Verified step by step guidance

1. Understand the concept of absorption costing: Absorption costing is a method of costing that includes all manufacturing costs—both variable and fixed—in the cost of a product. This contrasts with variable costing, which includes only variable manufacturing costs.
2. Identify the components of manufacturing costs: Manufacturing costs typically include direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. Selling and administrative expenses are not considered part of manufacturing costs under absorption costing.
3. Recognize the distinction between product costs and period costs: Under absorption costing, product costs include all costs associated with manufacturing the product (direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead). Period costs, such as selling and administrative expenses, are not included in the calculation of unit cost.
4. Review the options provided in the problem: Evaluate each option to determine whether it includes all the components of manufacturing costs under absorption costing. The correct answer should include direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.
5. Conclude the correct answer: Based on the principles of absorption costing, the correct answer is the option that includes direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. Selling and administrative expenses and variable manufacturing overhead alone are not sufficient to calculate unit cost under absorption costing.