Question

Jamlee Investment Ltd is planning to make 120,000 units per period of a new product. The following standards have been set:

Per Unit
Direct Material A 1.2 kgs at K11 per kg
Direct Material B 4.7 kg at K6 per Kg
Direct Labor:
Operation 1 42 minutes
Operation 2 37 minutes
Operation 3 11 minutes
Overheads are absorbed at the rate of k30 per labor hour. All direct operatives are paid at the rate of K8 per hour.
Actual results for the period were:
Production 126,000 units
Direct Labor cost k1.7m for 215,000 clock hours
Material A Cost K1.65m for 150,000 kgs
Material B cost K3.6m for 590,000 kgs
Required
Calculate the standard cost for one unit

Answer 1

The standard cost for one unit is calculated by adding the costs of direct materials, labor, and overheads. It is K13.2 for Material A, K28.2 for Material B, K12 for labor, and K45 for overheads, totaling K98.4 for one unit.

Step-by-step explanation:

To calculate the standard cost for one unit of the product made by Jamlee Investment Ltd, we need to consider the costs of direct materials, direct labor, and overheads. First, we will determine the cost per unit for each of these components.

The cost of Direct Material A per unit is 1.2 kg at K11 per kg. Therefore, the cost for Material A is 1.2 kg × K11/kg = K13.2 per unit. Similarly, for Direct Material B, the cost per unit is 4.7 kg at K6 per kg, leading to 4.7 kg × K6/kg = K28.2 per unit.

Next, we calculate the labor cost. The total time required for labor is 42 minutes + 37 minutes + 11 minutes = 90 minutes or 1.5 hours. As the operatives are paid K8 per hour, the labor cost per unit is 1.5 hours × K8/hour = K12.

Overhead costs are absorbed at K30 per labor hour. Since we have 1.5 hours of labor per unit, the overhead cost per unit is K30/hour × 1.5 hours = K45.

The standard cost per unit is the sum of material, labor, and overhead costs: K13.2 (Material A) + K28.2 (Material B) + K12 (Labor) + K45 (Overhead) = K98.4.