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CA Intermediate · Cost and Management Accounting · Unit & Batch Costing

A manufacturer makes 2,000 units per batch. For one batch, the prime cost is Rs 3,20,000. Factory overheads are absorbed at 25% of prime cost, and administration overheads at 10% of factory cost. The batch is sold at a profit of 20% on selling price. What is the selling price per unit?

The selling price per unit is Rs 275. Total batch cost is Rs 4,40,000, and because profit is 20% of selling price, cost is 80% of sales, giving sales of Rs 5,50,000 for 2,000 units.

  1. ARs 200.00
  2. BRs 220.00
  3. CRs 275.00Correct
  4. DRs 247.50

Explanation

Factory overheads = 25% x 3,20,000 = 80,000, so factory cost = 4,00,000. Administration overheads = 10% x 4,00,000 = 40,000, so total cost = 4,40,000. Cost is 80% of selling price, so batch sales = 4,40,000/0.8 = 5,50,000. Per unit = 5,50,000/2,000 = Rs 275. Taking profit as 20% on cost gives Rs 264, which is wrong.

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