Absorption and Variable Costing with Over$-$ and Underapplied Overhead

Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:

Manufacturing costs $($per unit$)$:

Direct materials $(2$ lbs$.$ @ $1\mathrm{.}30)$ $$2\mathrm{.}60$

Direct labor $(0\mathrm{.}4$ hr$.$ @ $15\mathrm{.}50)6\mathrm{.}20$

Variable overhead $(0\mathrm{.}4$ hr$.$ @ $5\mathrm{.}00)2\mathrm{.}00$

Fixed overhead $(0\mathrm{.}4$ hr$.$ @ $7\mathrm{.}00)2\mathrm{.}80$

Total $$13\mathrm{.}60$

Selling and administrative costs:

Variable $$1\mathrm{.}90$ per unit

Fixed $$220,500$

During the year, the company had the following activity:

Units produced $26,500$

Units sold $23,850$

Unit selling price $$35$

Direct labor hours worked $10,600$

Actual fixed overhead was $$13,600$ less than budgeted fixed overhead. Budgeted variable overhead was $$4,300$ less than the actual variable overhead. The company used an expected actual activity level of $10,600$ direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.

Required:

Question Content Area

$1.$ Compute the unit cost using $($a$)$ absorption costing and $($b$)$ variable costing.

Unit Cost

Absorption costing $fill in the blank

Variable costing $fill in the blank