Financial Performance another practice question help Osborne

katiekitkat123

I have found another question I cannot get my head around, I though cost card were easy just put the figures in but i keep getting it wrong, its is from the osborne website, It doesn't give me the answers just that the figure I have put in are incorrect, could someone tell me how I should approch this question, Thank you for your help.


The following information has been calculated for the production of 1 unit of Gamma
• Each unit will require 0.35 kilograms of material at a total cost of £14.00
• Each unit will require 45 minutes of labour at a cost of £12.00 per hour
• Fixed overheads total £63,000 and the estimated output will be 12,000 units of Gamma
• Fixed overheads are absorbed on a labour hour basis

Complete the standard cost card below. Show all figures to 2 decimal places.

1 unit of Gamma Quantity Cost per unit £ Total cost £
Material kg
Labour hours
Fixed costs hours
Totals

aaron0121

Hi katie,

1 unit of Gamma Quantity Cost per unit total Cost
Material Kg 0.35 40.00 14.00
labour hours 0.75 12.00 9.00
fixed cost hours 0.75 7.00 5.25
Total 28.25

First we know that each until requires 0.35 kg at a total cost of 14.00. To get the cost per unit we need to do 14/0.35=40.00. For labour hours to get the quantity for 1 unit we need to do 45/60 which is 0.75. As the cost per hour is 12 the total cost will be 9. For fixed overheads we know that overheads are absorbed on a labour hour basis so its 0.75. To get the total cost we do 63000/12000=5.25. Then cost per unit is 5.25/0.75 is 7.00. Then finally the total cost is 14+9+5.25 which gives 28.25.
Hope this helps Katie :001_smile:

aaron0121

Also to view the answers on the osborne website, when you get to question 15 there should be a tab saying view solutions.

welshwizard

Hope this helps - the answer



Description
Units required
Cost per unit (I.e. £/kg or £/hr)
Total Cost


Direct materials
0.35kg
£40.00/kg
If 0.35kg cost £14.00 then 1kg must cost £40.00
14.00


Direct labour
0.75hrs
£12.00/hr
As 1 hour is given at £12.00 then 0.75hrs must be £9.00
9.00


Fixed overheads
0.75hrs
£7.00/hr
The £5.25 is calculated: £63,000/12,000 units = £5.25
then, if 0.75hrs is £5.25, then 1 hour fixed overheads must be £7.00
5.25


Total standard cost

(Hope this all helps you :huh:)
28.25

katiekitkat123

Could someone explain to me why the cost per unit is more than the total as I thought this would be less than the total cost. In my head I'm thinking if the total cost is £14 than the cost per unit must be less but it is more. Also how did I know that I should work out the amount for 1kg or 1 hour. I know it must be an easy answer and must look really stupid but I just can get my head round it

welshwizard

Hi Katie

If you buy 1kg (quantity) of sugar at £1.00 per kg (unit cost) then you pay £1 (Total cost)

If you buy 0.5kg (quantity) of sugar at £1.00 per kg (unit cost), you pay £0.50 (Total cost)

If you buy 2kg of sugar (quantity) at £1.00 per kg (unit cost) you pay £2.00 (Total cost)

Here the unit cost stays the same (the unit cost is the £/unit and the unit is the amount of kg., ltrs, mtrs etc)

You also said:

"Also how did I know that I should work out the amount for 1kg or 1 hour"

Think! If you're talking about direct labour hours, why would you want to include kgs here?
Wages are paid at a direct labour rate of £x/hr (unit cost or cost per unit)

I also saw your other post about not knowing how to flex a budget. Did you not cover this in Costs and Revenues last year and Budgeting this year? If not, I am very surprised that you passed these units. Remember, much of Level 4 is connected to what you've done before - start making the links (mind you, your tutor should be pointing you in that direction from day one).

Does this help...?

katiekitkat123

I was very surprised I passed budgeting to be honest as I didn't understand really what I was doing, The college I go to doesn't give enough time to teach each section and Cost and rev last year was a real mess our tutor left because of issues with the college and we had to teach ourselves, which mean we never really understood what we were doing, the college like to rote teach to pass exam but if you don't grasp why you are doing something then the information just doesn't sick.

So what you are say is that the cost per unit isn't how much it would cost to produce 1 unit, it is how much it would be to buy 1 kg of the material required?

I think once I understand why I am doing things, everything will drop into place, Its just a shame I have my exam tomorrow I could do with some extra time to get my head round all this.

hunyb

Hi Katie, I had problems with this question too when I was trying to work it out.

If you were thinking the same as me, I was putting the lower cost to cost per unit too and the total cost of mat or lab (the higher cost) in the total cost, of course we now know that this is wrong so the way I thought about it was....

Quantity is straight forward given in the question

Cost per unit, think of the the total cost of the unit being purchased being the total cost per kg or per hr

Total cost, this is the total cost PER UNIT being used

I personally think that the question is twisted, anyonelse agree or is it just us students?

hunyb

hunyb

Just read your previous post, good luck for your exam.

katiekitkat123

thanks Hunyb I think a lot of the aat questions are twisted and hard to understand. I was thinking the same as you, now i can see that the total cost is for 1 unit and the cost per unit is for the purchase price for 1 kg or 1 hour labour, I think that's it anyway :S

welshwizard

katiekitkat123 wrote: »

thanks Hunyb I think a lot of the aat questions are twisted and hard to understand. I was thinking the same as you, now i can see that the total cost is for 1 unit and the cost per unit is for the purchase price for 1 kg or 1 hour labour, I think that's it anyway :S

SPOT ON! You've got it, Katie!