Bharat Bicycle, located in India, produces an inexpensive yet rugged bicycle for use on crowded city streets. The company sells the bicycle for 500 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for the company’s operations last year follow:
Units in beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Units produced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Units sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Units in ending inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Variable costs per unit:
Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . R120
Direct labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R140
Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R50
Variable selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . R20
Fixed costs:
Fixed manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R600,000
Fixed selling and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R400,000
Required:
1. Assume that the company uses absorption costing. Compute the unit product cost for one bicycle.
2. Assume that the company uses variable costing. Compute the unit product cost for one bicycle.