EXERCISE 6-1 Variable and Absorption Costing Unit Product Costs (L011

Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city's crowded streets that it sells 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 labor R140 Variable manufacturing overhead R50 Variable selling and administrative R20 Fixed costs: Fixed manufacturing overhead R600,000 Axed selling and administrative 8400,000

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.

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