Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle f

Question

Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city’s crowded streets that it sells for 719 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 20,000 Units sold 18,000 Units in ending inventory 2,000 Variable costs per unit: Direct materials R 170 Direct labor R 350 Variable manufacturing overhead R 54 Variable selling and administrative R 20 Fixed costs: Fixed manufacturing overhead R 700,000 Fixed selling and administrative R 560,000 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.

Explanation / Answer

calculation of product cost under absorption costing and variable costing metods

figures in Rs

particulars variable costing method absorption costing method direct materials 170 170 direct labour 350 350 variable manufacturing overhead 54 54 fixed manufacturing overhead -- 700000/20000=35 total product cost 574 609

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