CA Foundation · Accounting · Inventories
Gupta Mills produced 8,000 units during a year against a normal capacity of 10,000 units. Direct material was ₹6,40,000, direct labour ₹2,40,000 and variable production overhead ₹80,000. Fixed production overhead was ₹1,50,000 for the year. As per AS 2, what is the cost per unit of finished goods?
The cost per unit is ₹135. Variable costs of ₹9,60,000 over 8,000 units give ₹120 per unit, and fixed overhead is absorbed at normal capacity: ₹1,50,000 divided by 10,000 units gives ₹15. Total is ₹135.
- A₹124.00
- B₹135.00
- C₹127.75Correct
- D₹120.00
Explanation
Variable cost = 6,40,000 + 2,40,000 + 80,000 = ₹9,60,000, i.e. ₹120 per unit for 8,000 units. Fixed overhead per unit is based on normal capacity: 1,50,000 / 10,000 = ₹15. Cost per unit = ₹135? Check: 120 + 15 = ₹135. Hence the correct value is ₹135, not ₹127.75.
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