Determine the unit cost of goods manufactured, based on (a) the variable costing concept and (b) the absorption costing concept. Variable costing Absorption costing
Variable cost are the cost which changes with every unit produced. And, unit cost of goods manufactured based on variable costing concept refers to the method in which cost of each unit of goods produced is measured on the basis increase in cost as per unit increased.
Variable costing is the method in which only variable costs are considered such as direct material, direct labor etc..
There are some cost other than fixed and variable cost, which can not be directly associated with every unit produced. for example: without incurring rent and electricity goods can not be manufactured. These goods are incurred for manufacturing goods, if goods are not manufactured, then no need for such cost incurring would have arisen. So, in absorption costing these costs are also distributed to each unit on some specific basis. This method of costing is known ass absorption costing.
Selling expenses are expense incurred on sale these are not part of manufacturing.
Administrative expenses are the expense incurred in office such as rent utilities, it has been assumed that the entire expense is of office, and in manufacturing only factory expenses are considered not office expenses.
It is assumed that total of factory costs such as rent, utilities and salary of foreman are considered in fixed manufacturing cost
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