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a ltd is currently producing 25 000 units of product p the variable cost per unit is 649277

A Ltd. is currently producing 25 000 units of product ‘P”. The variable cost per unit is Rs.7 while fixed cost is Rs.2, 00,000. The company is able to sell 20 000 units and 5000 units are unsold. While valuing this inventory, the valuation will be done at Rs.7 per unit, the value will be 5 000 units X Rs.7 per unit = Rs.35, 000. It will be seen that the total cost of production is Rs.7 [variable cost per unit] + Rs.8 [fixed cost per unit at the present level] = Rs.15 but the valuation will be at Rs.7 per unit only which is the variable cost per unit. [Principle of valuation of inventory i.e. cost price or market price whichever is low will be applied and in the example it is presumed that the selling price is more than the variable cost per unit].

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