# how to calculate the max material cost per unit

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sale price £25, the company has orders for 20,000 units, fixed costs per unit are £8 per unit, labour requirement per unit is 10 mins at a cost of £18 per hour.
the required profit margin is 40%, the material requirment is 100 grams per unit.
the question ask you to calculate the target cost per kg, and i've worked out most of the cost, but not sure hwo to work out maximum material cost per unit. please help.

• Registered, Moderator Posts: 2,034 mod
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Total cost (max) £15
Lab cost/unit (£3)
F cost per unit (£8)
Max cost for material £4 per unit
100 grams/unit
So 1 kg = £40.00 max per kg
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered Posts: 481 Dedicated contributor 🦉
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SandyHood wrote: »
Total cost (max) £15
Lab cost/unit (£3)
F cost per unit (£8)
Max cost for material £4 per unit
100 grams/unit
So 1 kg = £40.00 max per kg

thanks sandy, but where did you get 1kg = £40 per kg, it didn't say anything in th question though.
• Registered Posts: 1,800 Beyond epic contributor 🧙‍♂️
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i think it is

total cost less fixed costs less labour cost

£15-£8-£3 = £4 material cost per unit

100 gms per unit - you can make 10 from 1 kg

10 x £4 = £40 per kg

Hope that makes sense?

Tracy
• Registered Posts: 1,774 Beyond epic contributor 🧙‍♂️
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Yeah thats right Taskey. I did this the other day that's the only reason I know. I got it wrong (seem to get it wrong more than I get it right while revising)
• Registered Posts: 1,800 Beyond epic contributor 🧙‍♂️
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it took me back lol

had to dust the brain off to get that

Tracy
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meibaker wrote: »
thanks sandy, but where did you get 1kg = £40 per kg, it didn't say anything in th question though.

It asked "how much per kilogram?"

As Taskey has shown, if 100g cost £4.00
Then I kilogram costs £40.00

(I will assume you know that there are 1,000 grams in 1 kilogram)

Then 1 kilogram costs £40.00
Sandy
sandy@sandyhood.com
www.sandyhood.com
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SandyHood wrote: »
It asked "how much per kilogram?"

As Taskey has shown, if 100g cost £4.00
Then I kilogram costs £40.00

(I will assume you know that there are 1,000 grams in 1 kilogram)

Then 1 kilogram costs £40.00

• Registered Posts: 481 Dedicated contributor 🦉
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thanks guys! very appriciated!
• Registered Posts: 1,774 Beyond epic contributor 🧙‍♂️
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Oh no Sandy has brought up the 1000g in a kg thing again!
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how would you get the target cost per kilogram? and if it was target labour time time per unit (minutues)
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how would you get the target cost per kilogram?

Material cost per unit
kilograms per unit

target labour time time per unit (minutes)

Total target labour cost per unit
Labour rate per minute
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered Posts: 2 New contributor 🐸
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meibaker wrote: »
sale price £25, the company has orders for 20,000 units, fixed costs per unit are £8 per unit, labour requirement per unit is 10 mins at a cost of £18 per hour.
the required profit margin is 40%, the material requirment is 100 grams per unit.
the question ask you to calculate the target cost per kg, and i've worked out most of the cost, but not sure hwo to work out maximum material cost per unit. please help.

First of all as the required profit margin is 40% this automaticly tells you that 40% of the sales price is the profit and 60% will be the cost, because we are trying to work out cost we do £25 x 0.60 (60%) which gives us £15 we know our fixed cost per unit are £8 and labour is 1/6 of a hour so if it is £18 for the hour but we only need 1/6 therefor labour is £3 so now we have the £8+£3=£11 leaving us £4 to spend on material as 100g is £4 therefor a kg must be £40 as there is a 1000g in 1 kg.
• Registered Posts: 81 Epic contributor 🐘
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yeah doesn't help as much and i dont think thats right because i tried using that on a question but its the wrong answer
• Registered Posts: 81 Epic contributor 🐘
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i have one sameone but little bit different price which the product would be sold is £40.00, company has firm orders for 10,000 units ata price of £40 for the first year, the fixed cost are £120,000 per year, labour is 20minutes at a cost of £18.00 per hour, the required profit margin is 45% the material requirment is 200 grams per unit. I got the total cost is 22.00, fixed is 12.00, and labour is 6.00 which leads to max material is 4.00 but how do you get target cost per kg 20.00..

2) product sold at £30.00, 20,000 units, fixed cost £180,000 per year, labour 15 per hour, profit margin 40%, material requirments 250grams per unit materil cost 16 per kg,
total cost:£18.00
Fixed cost:9.00
Material cost:4.00
Max labour cost:5.00

Target labour time per unit(minutes):20.00 how do you get this one aswell i need help exam is tomorrow lol