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Suppose that a cement factory has a normal production capacity of 80
Suppose that a cement factory has a normal production capacity of 80.000 tons. In March, 20.000 tons were produced and 15.000 tons were sold. Here are the data: (a) Direct material cost 200.000 $, (b) Direct labor cost 800.000 $, (c) Factory overhead 1.000.000 $. As an internal auditor, you have explored that 100% of the direct labor costs and 80% of the factory overhead is fixed. Now, what would be the cost of cement sold when normal absorption costing is used?
- 450.000 $
- 500.000 $
- 550.000 $
- 600.000 $
Expert Solution
The correct answer is c.550.000 $
Total absorption costing is a method of Accounting cost which entails the full cost of manufacturing or providing a service. TAC includes not just the costs of materials and labour, but also of all manufacturing overheads. The cost of each cost center can be direct or indirect.Hence, we have added up all the cost
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