- This topic has 6 replies, 2 voices, and was last updated 5 days ago by
John Moffat.
John Moffat.-
Posts
-
johnbriane
- Topics: 102
- Replies: 121
- ☆☆☆
sir this is a question from lsbf revision kit
please help us to find the cost per unit based on absorption costing
thank youalthough the answer is B i do not understand it how .
A product has a standard selling price of $80 per unit and a standard contribution of $18 per unit . in the last period the sales volume contribution variance was $3,600 adverse . the management accountant calculates that if the company had used standard absorption costing the sales volume profit variance would have been $2000 adverse .
What is the standard absorption cost per unit ?
A. $62
B. $70
C. $8
D. $52John Moffat
- Topics: 57
- Replies: 46649
- ☆☆☆☆☆
The sales volume must have been lower than budgeted by 3,600/18 = 200 units.
Therefore the standard profit using absorption costing must be $2,000 / 200 = $10 per unit.
Therefore the standard absorption cost must be 80 – 10 = $70 per unit.
johnbriane
- Topics: 102
- Replies: 121
- ☆☆☆
Sir why don’t we divide
$2000/400 units ?Because 400 is the budgeted units
johnbriane
- Topics: 102
- Replies: 121
- ☆☆☆
And then
Selling price less variable cost is contribution
So
$80
Less the vc
Is $18
Which is the contributionSo
Does that mean $62 is the variable cost ?John Moffat
- Topics: 57
- Replies: 46649
- ☆☆☆☆☆
Nowhere in the question does it say that 400 is the budgeted units.
The standard variable cost is indeed $62.
However the question asks for the standard absorption cost and I have explained how it comes to $70.
johnbriane
- Topics: 102
- Replies: 121
- ☆☆☆
If sales volume is 200 lower than the budgeted then
Actual units could be 400 units right sirCan we take that way or
John Moffat
- Topics: 57
- Replies: 46649
- ☆☆☆☆☆
All we know (and all we need to know) is that the actual units are 200 less than the budgeted units.
We do not know (and do not need to know) either the budgeted units or the actual units, and I have no idea at all where you are getting 400 from.
johnbriane
John Moffat- You must be logged in to reply to this topic.