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

Rohan Engineering Ltd. made 2,000 units last year at a total cost of Rs 12,00,000, which included fixed cost of Rs 4,00,000. In the coming year, the units will be 2,500, the variable cost per unit will rise by 10% and fixed cost will stay unchanged. What will be the cost per unit?

The cost per unit will be Rs 600. Variable cost per unit was Rs 400 and rises 10% to Rs 440. Total cost is 2,500 times 440 plus fixed Rs 4,00,000, which equals Rs 15,00,000, and dividing by 2,500 units gives Rs 600.

  1. ARs 546
  2. BRs 560Correct
  3. CRs 576
  4. DRs 600

Explanation

Last year's variable cost = 12,00,000 - 4,00,000 = Rs 8,00,000, or Rs 400 per unit. With a 10% rise it becomes Rs 440. Total cost = 2,500 x 440 + 4,00,000 = 11,00,000 + 4,00,000 = Rs 15,00,000. Cost per unit = 15,00,000 / 2,500 = Rs 600. Therefore the key is Rs 600, not Rs 560.

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