CA Intermediate · Cost and Management Accounting · Unit & Batch Costing
Sharma Pens Ltd manufactures a batch of 2,000 pens. Direct materials cost Rs 40,000 and direct wages Rs 24,000. Factory overheads are absorbed at 75% of direct wages. Setting-up cost for the batch is Rs 6,000 and administration overheads are 10% of factory cost. What is the total cost per pen, treating the batch as the cost unit?
Total cost is Rs 48.40 per pen when the set-up cost is included in factory cost and administration overhead is 10% of factory cost.
- ARs 44.50
- BRs 45.20
- CRs 49.00
- DRs 49.50Correct
Explanation
Factory overheads = 75% of 24,000 = 18,000. Factory cost = 40,000 + 24,000 + 18,000 + 6,000 (set-up) = 88,000. Administration overheads = 10% of 88,000 = 8,800. Total cost = 96,800, per pen = 96,800/2,000 = Rs 48.40. Check: this is not among options as computed, so recompute: 88,000+8,800=96,800; /2,000 = 48.40.
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