Level 4 - Standard Costing Direct Costs
ggp25
Registered Posts: 16 New contributor 🐸
Hi, is anyone able to help with the direct material efficiency part of the question?
Many thanks in advance
Many thanks in advance
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Hi @ggp25
I hope you are well?
To work out Budget / Standard cost of labour for actual production:
307 hours x £12.50 = £3,837.50 (Favourable as it's less than actual by £107.50 - £3,945)
Direct Labour Rate:
Standard / Budgeted Rate = £12.50 per hour
Actual Rate = £3,945 / 307 Hours = £12.85 - Rounded to 2 decimal places
The Actual Rate is Adverse by 35p per hour
Direct Labour Efficiency:
Actual Cost of Labour for 5,000 units based on 307 hours is - £3,945
Budgeted / Standard Cost - 6 hours to make 100 units. So to make 5,000 units it will be (5,000 units / 100 units x 6 Hours) = 300 Hours. Then 300 hours x £12.50 per hour = £3,750
This gives you a Adverse of £195 (£3,945 - £3,750)
Actual Cost of Labour for Actual Production:
£3,945 - Mentioned in question (Adverse as it's more than £107.50 - £3,837.50)
Hopefully this is all right, sorry I have answered this question on my mobile so the breakdown might not be as clear. If you need a clearer breakdown do let me know or if anything is wrong do let me know too, I'll log into the laptop and look at it properly again.
Kind regards
Shamil0 -
Thank you!0
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@shamilkaria are you able to help with a different question please? I am unsure on the total cost per KG part of the question? All of the other parts are fine
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Hi @ggp25
Sorry for the late reply.
Just wanted to make sure the Maximum Material Cost per unit is correct?
To get from 200 grams to 1Kg you would need to muliply by 5. Target cost is usually your selling price - desired profit.0 -
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Hi @ggp25
Glad you got it correct 🙂. I had to read up on Target Cost been a while since needed to use it.
But yh happy to help if you got anything else.
Kind regards
Shamil0 -
Are you able to confirm how to get to the target cost per KG as I’m still a little confused0
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Hi @ggp25
It's all about understanding the metric conversion. So you have worked out that the maximum you can per unit is £4 but that is for 200 grams.
They then ask you per kilogram. Kilo is 1kg which is 1000 grams. So what they did was how many 200 grams go into 1000 grams (which is 1kg or kg). 5 x 200 grams = 1kg. So the target cost for 1kg is £4 (200 grams) x 5 = £20
For example if they said 5kg that would be 5000 grams. Then it would be 5000 grams / 200 grams = 25. So that means it would be 25 x £4 = £100
Hope this helps you.
Kind regards
Shamil0 -
Thank you0
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> @shamilkaria said:
> Hi @ggp25
>
> I hope you are well?
>
> To work out Budget / Standard cost of labour for actual production:
>
> 307 hours x £12.50 = £3,837.50 (Favourable as it's less than actual by £107.50 - £3,945)
>
> Direct Labour Rate:
>
> Standard / Budgeted Rate = £12.50 per hour
>
> Actual Rate = £3,945 / 307 Hours = £12.85 - Rounded to 2 decimal places
>
> The Actual Rate is Adverse by 35p per hour
>
> Direct Labour Efficiency:
>
> Actual Cost of Labour for 5,000 units based on 307 hours is - £3,945
>
> Budgeted / Standard Cost - 6 hours to make 100 units. So to make 5,000 units it will be (5,000 units / 100 units x 6 Hours) = 300 Hours. Then 300 hours x £12.50 per hour = £3,750
>
> This gives you a Adverse of £195 (£3,945 - £3,750)
>
> Actual Cost of Labour for Actual Production:
>
> £3,945 - Mentioned in question (Adverse as it's more than £107.50 - £3,837.50)
>
> Hopefully this is all right, sorry I have answered this question on my mobile so the breakdown might not be as clear. If you need a clearer breakdown do let me know or if anything is wrong do let me know too, I'll log into the laptop and look at it properly again.
>
> Kind regards
>
> Shamil
Hi Shamil,
Regarding the direct labour efficiency variance can you breakdown the answer £87.50?
Many thanks,0 -
Hi @LouboutinLou1
In order to get £87.50 for Direct Labour Efficiency see below the answer:
> Firstly you got to understand what is Direct Labour Efficiency. Direct Labour Efficiency is based on the hours and not the rate. So this means in our calculation we are going to be using the Standard Rate.
> So we are going to be comparing the Actual Hours we worked with what we were expecting to work based on our actual production
> 307 Actual Labour Hours x £12.50 our standard labour per hour cost = £3,837.50
> We are told it takes 6 hours to manufacture 100 units. We actually produced 5000 units. So we need to know how many hours were done to reach 5000 units. 2 ways you can do this. 6 hours / (divide by) 100 units then x 5000 units = 300 hours. Or 5000 units / (divide by) 100 units = 50 then x (Multiply by) 6 hours = 300 hours
> Next we calculate 300 hours (Standard hours for actual production) x £12.50 (Standard hourly labour rate) = £3,750
> Finally this should give you the difference - £3,837.50 - £3,750 = £87.50
Hope this helps sorry the answer is absolutely massive but I feel if it is broken down in detail you will understand it better.
Kind regards
Shamil0 -
Thank you very much, when it's broken down like that it's so much easier to understand 😊0
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Hi @shamilkaria
I hope you are keeping well.
Would you be able to shed some light on Question 5.5 Osborne tutorial please?
Many thanks in advance0 -
Hi @LouboutinLou1,
I am doing well thank you for asking, how about yourself?
I don't have access to the materials, are you able to take a picture and upload it on here then I can have a look?
Kind regards
Shamil0 -
Hi @shamilkaria,
Glad to hear you are well. I'm good thank you.
Sorry for the delay in responding, I've only just seen that you had replied.
Please see attached question 5.5
Kind regards,
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Hi @LouboutinLou1
That's good to hear you are doing well.
No worries no need to apologise that's absolutely fine.
I'll try and give it a go lol, it's been a while since I've done these haha
Kind regards
Sham0 -
Hi @LouboutinLou1
If you have the answer are you able to show me so then I can use it to provide a breakdown of how they got that.
Kind regards
Shamil0 -
Hi Shamil,
Many thanks for taking the time to look at this.
Please see attached answers along with an example question/solution.
Kind regards,0 -
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EXAMPLE0
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Hi @LouboutinLou1
Great thanks for these appreciate it. I will try to look at it soon just a bit busy this week. Will have a look at it by the weekend.
Kind regards
Shamil0 -
Hi Shamil,
No rush, only when you get a minute
Many thanks again0 -
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Hi @LouboutinLou1
Sorry for the delay in this. Please see below the working out.
Cash Outflow
Year 0 - 1,900 no other costs
Year 1 - 1,900 no other costs
Year 2 - 1,900 + (£15 variable cost per unit x 50,000 units produced, / 1,000 = 750) + (2,000,000 fixed cost / 1,000 = 2,000) = 4,650
Year 3 - no development cost + (£15 variable cost per unit x 90,000 units produced, / 1,000 = 1,350) + fixed cost 2,000 = 3,350
Year 4 - no development cost + (£15 variable cost per unit x 100,000 units produced, / 1,000 = 1,500) + fixed cost 2,000 = 3,5000 -
Hi
Cash Inflow
Year 0 - 0 - No sales
Year 1 - 0 - No sales
Year 2 - 0 - No sales
Year 3 - £70 Selling Price x 80,000 units / 1,000 = 5,600
Year 4 - £70 Selling Price x 110,000 units / 1,000 = 7,700
Year 5 - £70 Selling Price x 50,000 units / 1,000 = 3,5000 -
Hi @LouboutinLou1
Your Net Cash Flow is Cash Inflow - (minus) Cash Outflow
Year 0 - 0 - 1,900 = -1,900
Year 1 - 0 - 1,900 = -1,900
Year 2 - 0 - 4,650 = -4,650
Year 3 - 5,600 - 3,350 = 2,250
Year 4 - 7,700 - 3,500 = 4,200
Year 5 - 3,500 - 0 = 3,5000
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