Question

Bharat Bicycle, located in India, produces an inexpensive yet rugged bicycle for use on crowded city streets. The company sells the bicycle for 650 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for the company's operations last year follow: Units in beginning inventory Units produced Units sold Units in ending inventory 13,000 11,600 1,400 Variable costs per unit: Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative R189 R164 R70 R44 R975,000 Fixed costs: Fixed manufacturing overhead Fixed selling and administrative R650,000 Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one bicycle. Unit product cost R 2. Assume that the company uses variable costing. Compute the unit product cost for one bicycle.

Answer 1

Answer

1. Unit product cost under Absorption costing:

Direct Material                                                                        R 189

Direct labour                                                                           R 164

Variable manufacturing overheads                                         R 70

Fixed manufacturing overheads (R 975000 / 13000)             R 75

Unit product cost                                                                R 498

2. Unit product cost under Variable costing:

Direct Material                                                                        R 189

Direct labour                                                                           R 164

Variable manufacturing overheads                                         R 70

Unit product cost                                                                  R 423