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# Variable production cost

Ken owns a manufacturing business which makes a single product. The following figures apply for all relevant periods.

Per unit \$
Selling price 35
Direct Material 9
Direct Labour 11
Fixed Manufacturing
cost 5

Fixed Manufacturing overheads are absorbed into product costs at pre-determined retes per unit output.under-or over-absorbed manufacturing overheads are transferred to profit and loss in the period in which they
occur.

Normal production is 80,000 units per accounting period

The following information has been acquired for the last three accounting periods.

Three months ended 28 Feb 31May 31August
units units units
Sales 60000 80000 45000
Stock 15000 0 35000
Stock at end of period 0 35000 20000

Production Variable cost 900, 2300,and 600

28 Feb 31May 31August
000 000 000
Marginal costing
Sales \$ 2100 \$ 2800 \$ 1575
_____ ____ _____
Opening Stock 300 0 700
Production variablecost 900 2300 600
___ ____ ____
1200 2300 1300

Closing stock 0 700 400
____ _____ ____
1200 1600 900
____ ____ ___
contribution 900 1200 675
Fixed cost 400 400 400
___ ___ ____
Profit 500 800 275

#### Solution Preview

The production variable cost = Units produced X cost per unit
Variable cost per unit = Direct Material + Direct Labor = 9+11 = \$20
28 Feb
Total sales are 60,000 units ...

#### Solution Summary

The solution explains the calculation of variable production cost

\$2.19