During the month of April, Vane Co. produced and sold 10,000 units of a product. Manufacturing and selling costs incurred during April were as follows:$\begin{array}{lrr}
\text { Direct materials and direct labour.} &£ 400,000\
\text { Variable manufacturing overhead.} &90,000\
\text { Fixed manufacturing overhead.} &20,000\
\text { Variable selling costs.} &10,000\
\end{array}$

Assume that direct labour is a variable cost. The unit product cost under variable costing was

Question

During the month of April, Vane Co. produced and sold 10,000 units of a product. Manufacturing and selling costs incurred during April were as follows:$\begin{array}{lrr}
  \text {  Direct materials and direct labour.} &£ 400,000\
 \text {  Variable manufacturing overhead.} &90,000\
 \text {  Fixed manufacturing overhead.} &20,000\
 \text {  Variable selling costs.} &10,000\
\end{array}$

Assume that direct labour is a variable cost. The unit product cost under variable costing was

Quizplus · Accepted Answer

Variable costing includes all variable production costs (direct materials, direct labor, and variable manufacturing overhead) in the cost of a unit. Fixed manufacturing overhead is not included in the cost of a unit under variable costing. The total variable costs are £400,000 (direct materials and labor) + £90,000 (variable manufacturing overhead) = £490,000. Dividing this by the number of units produced and sold (10,000 units) gives a unit product cost under variable costing of £49 (£490,000 / 10,000 units).

During the Month of April, Vane Co Assume That Direct Labour Is a Variable Cost