Under absorption costing a company had the following per unit costs when 10,000 units were produced.
Direct labor......................................................$ 2
Direct material.....................................................3
Variable overhead................................................4
Total variable cost................................................9
Fixed overhead ($50,000/10.000 units)........................5
Total production cost per unit...............................$14
1. Compute the company's total production cost per unit if 12,500 units had been produced.
2. Why might a manager of a company using absorption costing produce more units than can currently be sold?