Ivy, SA, Produces a Single Product That Sells for £60 Per

question 19

Essay

Ivy, SA., produces a single product that sells for £60 per unit. There were no inventories of work in process or finished goods. Costs for the year were as follows: $\begin{array}{ll}\text { Variable costs: } & \\\text { Direct materials } & £ 8 \text { per unit } \\\text { Direct labour } & £ 12 \text { per unit } \\\text { Manufacturing overhead } & £ 5 \text { per unit } \\\text { Selling expenses } & £ 3 \text { per unit }\end{array}$
Fixed costs:
Manufacturing overhead $\quad$$\quad$$£ 36,000$ per month
Selling and admini strative $\quad$$\quad$$£ 15,000$ per month During the first three months of the year, production and sales in units were as follows: $\begin{array}{llr}&\text { Production } & \text { Sales } \\\text { January } & 4,000 & 4,000 \\\text { February } & 4,000 & 3,500 \\\text { March } & {4,000}&4,500 \\\text { Total } &4,000&{4,500}\\\end{array}$ The company uses an actual cost system. There were no work-in-process inventories at the end of any month, and the company uses FIFO costing.
a.Determine the unit cost of production under variable costing for each of the three months.
b.Determine the unit cost of production under absorption costing for each of the three months.
c.Determine income under variable costing for each of the three months.
d.Determine income under absorption costing for each of the three months.

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Definitions:

Direct Labor Budget

An estimation of the cost and amount of labor required for production or services, included within a company's overall budget planning.

Wage Rate

The amount of money paid to an employee per unit of time or per unit of output, which can be influenced by several factors including industry, occupation, and geographical location.

Production Budget

A financial plan that estimates the number of units that must be manufactured to meet sales goals and manage inventory levels.

Production Budget

An estimate of the total cost of production, including raw materials, labor, and overhead costs, for a specific period.