Question

Bharat Bicycle, located in India, produces an inexpensive yet rugged bicycle for use on crowded city streets. The company sells the bicycle for 600 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		18,050
Units sold		15,600
Units in ending inventory		2,450
Variable costs per unit:
Direct materials		R187
Direct labour		R199
Variable manufacturing overhead		R39
Variable selling and administrative		R24
Fixed costs:
Fixed manufacturing overhead		R1,028,850
Fixed selling and administrative		R685,900

Required:
1.	Assume that the company uses absorption costing. Compute the unit product cost for one bicycle.

       

2.	Assume that the company uses variable costing. Compute the unit product cost for one bicycle.

       

Answer 1

Solution:

Calculation of Unit product cost under Absorption Costing Method:

Cost per unit under absorption costing includes fixed manufacturing overhead per unit along with direct materals,direct labor,variable manufacturing overheads per unit.

Fixed manufacturing overhead per unit = Fixed manufacturing overhead / No. of units produced

= R 1,028,850 / 18,050 units

= R 57

Direct materials per unit	R 187
Direct Labor per unit	R 199
Variable Manufacturing Overhead per unit	R 39
Fixed Manufacturng Overhead per unit	R 57
Cost per Unit	R 482

Therefore unit product cost per bicycle is R 482

Calculation of unit product cost under Variable costing:

Fixed manufacturing overhead cost is not included under variable costing method.

Direct Materials	R 187
Direct Labour	R 199
Variable manufacturing overheads	R 39
Cost per Unit	R 425

Therefore, unit product cost per bicycle is R 425