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

Dhruv Engineering manufactures a batch of 500 gears. Costs: materials Rs 60,000; direct wages Rs 40,000; factory overhead is 150% of direct wages; administration overhead is 20% of factory cost. Set-up of the batch is already included in the wages. The firm sells at a profit of 25% on selling price. What is the selling price per gear?

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  1. ARs 384Correct
  2. BRs 307.20
  3. CRs 320
  4. DRs 480

Explanation

Factory overhead = 1.5 x 40,000 = 60,000. Factory cost = 60,000 + 40,000 + 60,000 = 1,60,000. Admin = 20% x 1,60,000 = 32,000. Total cost = 1,92,000. Profit is 25% of sales, so sales = 1,92,000 / 0.75 = 2,56,000, i.e. Rs 512 per gear? Check: 2,56,000 / 500 = 512. So the correct answer is Rs 512, not listed.

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