Standard costing - direct costs

emanneh

Question 3.3 Osborne workbook

A company expects to produce 18,000 units of Z using 6,000 labour hours. The standard cost of labour is £15 per hour. If the actual output is 17,500 units, what is the standard labour cost for this output?

shamilkaria

Hi @emanneh

I hope you are well?

You are told 6000 hours required for 18,000 units. So to work how many hours per unit it will be 6000 (Hours) / 18,000 (Units) = 0.3333333 per hour.

You are told that the actual output was 17,500 units so you would multiply that by 0.3333 hours which gives us 5834 hours rounded up.

Now to work out the cost we have 5834 hours x £15 per hour = £87,510

Hopefully this is right, if not could just be a rounding issue. If it's not right or the rounding error isn't issue do let me know I can look into it further

Kind regards

Shamil

emanneh

Hi Shamil,
Thanks for your great efforts. It’s right, just a roundup issue. Because you reduced the standard hour per unit to 4 decimal point, that’s why you didn’t get the right figure, which is £87,500. The confusion was the question did not mention rounding up, though, the standard labour cost figure showed it has been rounded up.

Thanks

Ebrima Manneh

shamilkaria

Hi @emanneh

Thanks for letting me know appreciate it.

I had a feeling that was coming about the rounding issue, I picked it up when doing the calculations, it's just it didn't mention how many decimal places to round. It's usually anything between 1-2 decimals. Main thing is as long as you understood how the figure came up.

Hope this has helped you answer future questions.

Kind regards

Shamil