Question

M/s priya industries is in the business of manufacturing and selling lubricants. thereare 4 types of products. the information available about each:p1 p2 p3 p4 totalno. of unitsproduced 1300 2000 1500 1200 6000labour hours 250 350 200 200 1000no. of units in 1packet 2 5 3 3 13machine hours 260 450 360 180 1250the total cost incurred is as under:fixed costs rs.salaries and wages 2500000supervisor cost 75000factory overheads 1000000packaging costs 600000total costs 4175000it is assumed that the supervisor spends time in proportion of units produced.calculate the cost of each unit of the products under:

traditional costing

Answer 1

To calculate the cost of each unit under traditional costing for Priya Industries, allocate fixed costs based on the proportion of units produced, then divide the total allocated costs by the number of units for each product. This will provide the cost per unit for each product, demonstrating economies of scale as production quantity increases.

Step-by-step explanation:

To calculate the cost of each unit of the products under traditional costing, we first assign the fixed costs based on the proportion of units produced for each product. The total number of units produced is 6,000 (1300 for P1, 2000 for P2, 1500 for P3, and 1200 for P4). The total fixed costs are Rs. 4,175,000, which include salaries and wages (Rs. 2,500,000), supervisor cost (Rs. 75,000), factory overheads (Rs. 1,000,000), and packaging costs (Rs. 600,000).

To determine the cost per unit for each product, we need to divide the respective fixed costs by the number of units produced. For example, the supervisor cost allocated to P1 will be Rs. 75,000 multiplied by the proportion of units of P1 (1300/6000). Once we sum up all the allocated costs for P1, we divide this total by the number of units of P1 to get the cost per unit.

This process is repeated for each product to get the per-unit costs for P2, P3, and P4 as well. After calculating the per-unit cost for each product, we have an understanding of the economies of scale; as production quantity increases, the average cost per unit typically decreases, as depicted in the given example of alarm clock production.