# PEV Help!

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Registered Posts: 56 Regular contributor ⭐
I think im making a fairly simple question harder than it is but im just not understanding it!
Its from the December 2007 PEV paper, task 1.2 - the standard cost card... im not understanding where the unit price for teabags comes from the 0.006?
And i cannot get to the direct labour and fixed production overheads!

Any help would be much appreciated to get me out of this muddle!!!

thankyou!

• Registered, Moderator Posts: 2,034 mod
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The third bullet point on the standard cost card additional data says:
Tea bags cost 0.6 pence per bag

Well 1 pence = £0.01
So 0.6 pence = £0.006
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered, Moderator Posts: 2,034 mod
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• Budgeted labour hours are 4,000 per month
• One machine can package 5,000 bags per hour and requires one operator
If 5,000 bags are packed in an hour, it will take 0.2 hours to pack 1,000 bags
We know the operator is paid £10 per hour
• Fixed production overheads are absorbed on the basis of direct labour hours
• Fixed production overheads are £200,000 per month
• Budgeted production is 20,000 batches of 1,000 tea bags per month

£200,000 divided by 20,000 batches = £10.00 per batch
as each batch takes 0.2 hours then the OAR is £10/0.2 = £50.00 per hour
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered Posts: 56 Regular contributor ⭐
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ahh thankyou so much - thats made it alot clearer... although i still think i would have tripped up on that in the exam - takes alot of getting your head around?!