In August 2000 kgs of a material were introduced to a process at a cost of $5/kg, and 200 hours labour were spent at a cost of $12/hour. Overheads are absorbed at the rate of $3/labour hour. Normal losses are incurred at the rate of 5% of input and lost units can be sold for $0.8 per kilogram 1,900 units were produced
Calculate the total absorption cost of the good output and also show the process account.
Input costs less sale of normal loss =2,000 x $5 + 200 x $12 + 200 x 3 – 100 x 0.8 = 12,920
Expected output = 2,000 x 0.95 = 1,900 (Where does 0.95 come from?)
Cost per unit = $6.80
Normal loss = 5%, so you expect good output to be 95% (or 0.95) of the input.
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