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CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Kaveri Plastics produces 8,000 units a month. Rent of the factory is Rs 96,000 per month and is fixed. Direct material is Rs 40 per unit. If output rises to 10,000 units within the relevant range, what will be the total cost of these two items (rent plus direct material) per unit at 10,000 units?

The cost per unit is Rs 49.60. Fixed rent stays at Rs 96,000 while variable material becomes Rs 4,00,000 for 10,000 units. The total is Rs 4,96,000, and dividing by 10,000 units gives Rs 49.60, since fixed cost per unit falls with higher output.

  1. ARs 49.60Correct
  2. BRs 52.00
  3. CRs 40.00
  4. DRs 59.60

Explanation

Total at 10,000 units: rent Rs 96,000 (fixed) plus material 10,000 x 40 = Rs 4,00,000, total Rs 4,96,000. Per unit = 4,96,000/10,000 = Rs 49.60. Rs 52 comes from wrongly using the 8,000-unit rent per unit (Rs 12) with material Rs 40.

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