Question

1. Product X is manufactured by Y Co. Direct materials cost £6.10 and prime costs total £9.60 per unit of product. Production overheads are absorbed at a rate of £13.40 per machine hour. Two units of Product X are manufactured per machine hour.

Using absorption costing, what is the total production cost per unit of Product X?

1. £22.40
2. £16.30
3. £23.00
4. £29.10

Answer 1

Answer)

Calculation of Production cost per unit of Product X under Absorption costing

Particulars	Amount (In £)
Direct Materials cost per unit	6.10
Direct Labor cost per unit (£ 9.60 - £ 6.10)	3.50
Production overheads (£ 13.40 per machine hour/ 2 units per machine hour)	6.70
Total production cost per unit	16.30

Therefore total production cost of Product X under absorption costing is $ 16.30 per unit and the correct answer in the given question is Option (b) £ 16.30.

Working Notes:

· Under absorption costing Total manufacturing cost (variable manufacturing cost and fixed manufacturing cost) are considered as product costs.

· Prime cost is £ 9.60 per unit. Since prime cost is the sum of direct material cost and direct labor cost and direct material cost if £ 6.10 per unit, direct labor cost is £ 3.50 per unit (i.e. £ 9.60 - £ 6.10 per unit)