ACCA Applied Knowledge · Management Accounting · Cost accounting methods
A company produces components in batches. For Batch 41, direct materials cost $6,000, direct labour cost $4,000 and production overheads are absorbed at 150% of direct labour cost. The batch contains 500 units. What is the production cost per unit?
The production cost per unit is $32. Overheads absorbed are 150% of $4,000, which is $6,000. Adding materials of $6,000 and labour of $4,000 gives a batch cost of $16,000, and dividing by 500 units gives $32 per unit.
- A$20.00
- B$32.00Correct
- C$26.00
- D$16.00
Explanation
Overheads = 150% x $4,000 = $6,000. Total batch cost = 6,000 + 4,000 + 6,000 = $16,000. Cost per unit = 16,000 / 500 = $32. The $20 option omits overheads (10,000/500), and $26 applies overhead at 100% of labour.
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