ELCO CBT #1 Question 8

cobbinah Registered Posts: 3
I don't understand the workings for the questions below.

Why is the cost for Direct Materials £36,000 for 50,000 x units?
I don't understand why it is not £67,500 as this is the total cost figure calculated in part a).

Could any of you guys maybe help me to understand?

Best Regards


  • KLM
    KLM AAT Student Posts: 26
    Hi @cobbinah

    The £67,500 is the total value of inventory held. However, we only issue 8,000 kg to production at 4.50 per kg, giving a total cost of £36,000. The column on the right hand side of the table is the balance of inventory held at any one time.

    I hope this makes sense and helps to clear things up for you.
  • cobbinah
    cobbinah Registered Posts: 3
    Yes that makes sense.

    Could you also please on the workings for Task 8c)

    I don't understand why the total pay including bonuses for all 6 x employees was 14,736?

    Kind regards
  • KLM
    KLM AAT Student Posts: 26
    @cobbinah Yes, of course.

    This scenario gives a total gross weekly pay, including overtime, of £564.00. This is per employee, per week and does not include the bonus.

    As we have six employees, we need to multiply this figure by 6 to get the total gross weekly pay for all employees: £564.00 x 6 = £3,384.00 for the week.

    The question asks you to calculate the total for the 4 weeks in the month, so we need to take our weekly figure above (which is for all 6 employees) and multiply it by the 4 weeks in the month: £3,384.00 x 4 weeks = £13,536.00 for the month for all employees. This gives us the gross pay for the month; we now need to calculate the bonus.

    Each employee is paid £0.20 for every unit produced above the target of 4,000. As they produced 5,000, the bonus awarded is £200.00 (1,000 units x £0.20 = £200.00). Again, this is per employee, so we need to multiply this by 6 (the number of employees) to get the total bonus. £200.00 x 6 = £1,200.00. This is the total bonus payable for all employees for the month.

    We then add our bonus figure, £1,200.00, to our gross monthly pay calculated earlier, £13,536.00, to give the total cost of the pay for the month = £14,736.00.

    It may seems like a lot to take it when you first look at the question, but you just need to break it down and work it out in sections. It does become easier with practice.

    Let me know if you require any further help.
  • cobbinah
    cobbinah Registered Posts: 3
    Ah ok, now I've realized where I've gone wrong. the £200 was a one time bonus, to be added to the total figure at the end.
    Now everything makes sense.

    Thank you so very much.
  • KLM
    KLM AAT Student Posts: 26

    You're welcome.
    The questions can sometimes look much more complicated than they actually are. I sat my ELCO assessment earlier this week, so its all fresh in my mind :smile:

    Good luck with the rest of your revision!
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