Please explain how you arrived at your answers. Thank you. Exercise 6-1 Variable
ID: 2422192 • Letter: P
Question
Please explain how you arrived at your answers. Thank you.
Exercise 6-1 Variable and Absorption Costing Unit Product Costs [LO1]
Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the
city’s crowded streets that it sells for 909 rupees. (Indian currency is denominated in rupees,
denoted by .) Selected data for the company’s operations last year follow:
Units in beginning inventory 0
Units produced 10,000
Units sold 6,000
Units in ending inventory 4,000
Variable costs per unit:
Direct materials 240
Direct labor 390
Variable manufacturing overhead 63
Variable selling and
administrative 20
Fixed costs:
Fixed manufacturing overhead - 960,000
Fixed selling and administrative - 560,000
Required:
1. Assume that the company uses absorption costing. Compute the unit product cost for one
bicycle. (Round your intermediate and final answers to the nearest whole number. Omit
the " " sign in your response.)
Unit product cost =
2. Assume that the company uses variable costing. Compute the unit product cost for one
bicycle. (Omit the " " sign in your response.)
Unit product cost =
Explanation / Answer
Determination of cost per unit under variable costing is as follows:
Particulars
Amount
Units produced
10000
Selling cost per unit
909
Direct material
240
Direct labor
390
Variable manufacturing overhead
63
Variable selling overhead
20
Variable cost per unit
713
Cost per unit under variable costing
713
Determination of cost per unit under absorption costing is as follows:
Particulars
Amount
Units produced
10000
Selling cost per unit
909
Direct material
240
Direct labor
390
Variable manufacturing overhead
63
Variable selling overhead
20
Variable cost per unit
713
Cost per unit under variable costing(a)
713
Add:
Fixed costs
1520000
Fixed cost per unit(b)
152
Total cost under absorption costing(a+b)
865
Particulars
Amount
Units produced
10000
Selling cost per unit
909
Direct material
240
Direct labor
390
Variable manufacturing overhead
63
Variable selling overhead
20
Variable cost per unit
713
Cost per unit under variable costing
713