Level 4 - Standard Costing Direct Costs

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 @ggp25

Hopefully that was all right and it helped you 🙂

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.

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

Shamil

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

Shamil

Hi @ggp25

Most welcome

Kind regards

Shamil