Question
What is the value of per unit of inventory if the firm
uses absorption costing? Direct material cost per unit = Rs.3 Direct Labour cost per unit = Rs.4 Variable overheads are absorbed as 50% of direct labour cost Fixed production overheads = Rs.120,000 Budgeted production = 20,000 unitsSolution
Absorption costing valuation of inventory = fixed cost + variable cost Here, variable cost = direct material + direct labour + variable O/H = 3 + 4 + (50% of 4) = 9 Fixed cost per unit = (Fixed production overheads/ Budgeted production) = (120000/ 20000) = 6 Therefore, value of inventory as per absorption costing = 9 + 6 = Rs.15 per unit
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