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

Gupta Bottlers produces a product in batches of 5,000 units. Per batch, set-up cost is ₹2,500, material is ₹30,000, and labour is ₹20,000, with variable overheads of ₹10,000. Annual output is 60,000 units, and the market price is ₹16 per unit. Management considers cutting batch size to 2,500 units. Material, labour and variable overhead per unit stay unchanged, and set-up cost per batch stays ₹2,500. What is the total cost per unit at 2,500-unit batches?

The total cost per unit is ₹13. Material, labour and variable overhead total ₹60,000 per 5,000 units, i.e. ₹12 per unit, which does not change. Set-up cost of ₹2,500 spread over 2,500 units adds ₹1 per unit, so cost is ₹12 + ₹1 = ₹13.

  1. A₹13.00Correct
  2. B₹12.50
  3. C₹12.00
  4. D₹13.50

Explanation

At 5,000 units: material, labour and variable overheads = 60,000 per batch = ₹12 per unit. At 2,500 units, these cost 12 per unit, and set-up is 2,500 / 2,500 = ₹1 per unit. Total = ₹13. Check: 2,500 × 12 = 30,000 + 2,500 = 32,500; 32,500/2,500 = 13. The ₹12.50 option wrongly keeps set-up per unit at the old ₹0.50.

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