Bilbo Limited incurs the following costs and revenues in manufacturing and selling 8,000 units of its product X: Direct materials. E12 000 Direct labour. E16 000 E1000 Depreciation of machinery. Sales. 856 000 What is the contribution per unit of product? a. £7.00 b.E0.80 c. £2.50 d.£3.50
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
![Bilbo Limited incurs the following costs and revenues in manufacturing and selling 8,000 units of its product X:
- **Direct materials**: £12,000
- **Direct labour**: £16,000
- **Depreciation of machinery**: £1,000
- **Sales**: £56,000
### What is the contribution per unit of product?
Select the correct answer:
a. £7.00
b. £0.80
c. £2.50
d. £3.50
To solve this question, you must first understand that the contribution per unit is calculated by taking the total sales per unit and subtracting the total variable costs per unit.
*Sales per unit* is calculated as follows:
\[ \text{Sales per unit} = \frac{\text{Total Sales}}{\text{Number of Units}} \]
\[ \text{Sales per unit} = \frac{£56,000}{8,000 \text{ units}} = £7.00 \]
*Total variable costs* include direct materials and direct labour. Depreciation of machinery is typically considered a fixed cost, not a variable cost.
Total Variable Costs:
\[ \text{Total Variable Costs} = £12,000 + £16,000 = £28,000 \]
So, the variable cost per unit is:
\[ \text{Variable cost per unit} = \frac{£28,000}{8,000 \text{ units}} = £3.50 \]
*Contribution per unit*:
\[ \text{Contribution per unit} = \text{Sales per unit} - \text{Variable cost per unit} \]
\[ \text{Contribution per unit} = £7.00 - £3.50 = £3.50 \]
Therefore, the correct answer is:
d. £3.50](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fff534f0d-8410-4866-bd00-9f4749a051ba%2Fe5e45a1f-1b29-41ef-ac90-37966bc6fdf7%2Fqz8xfk_processed.jpeg&w=3840&q=75)
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