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Hello ! John, I have problem with a couple of questions.
1…. Predicted s.p is 56 p.u
Markup on cost is 25%. Mat. Cost is 16 before allowing for additional mat to allow for shrinkage of 20%( 10kg going in 8 coming out). If labour is the only other and 2 hrs are needed what is maximum rate per hr to avoid the cost gap.2……target cost is 38 which is 5 % less than actual. Busines introduces labour efficiency training to reduce cost gap. Mat Cost is 10 which will not change with effeciency. Labour rates are 8/hr. How much of an efficiency improvement (measured by the % reduction in labour time per unit will be necessary to remove the cost gap completely). Accurate ro 2 decimal places.
Sorry – I must have missed your question 🙁
You must have answers in the same book in which you found the questions – in future please ask about whatever it is in the answer that you are not clear about. Then I will help you.
1. The target cost is 100/125 x 56 = $44.80
The cost of materials is 10/8 x $16 = $20.
Therefore the maximum labour rate to avoid a cost gap = (44.80 – 20) / 2 = 11.40 per hour.2. The actual cost = 38/95% = $40, and therefore the current labour cost must be 40 – 10 = $30 and the labour hours per unit must be 30/8 = 3.75 hours.
To remove the cost gap, the actual cost must fall to $38 and therefore the cost of labour must fall to $18 per units, which means at $8 per hour the time must fall to 18/8 = 2.25 hours per unit.
So the efficiency improvement = (3.75 – 2.25) / 3.75 = 40%(Of course, since the labour rate per hour is not changing, the efficiency improvement could have been calculated directly as (30 – 18) / 30 = 40%)
Have you been watching my lectures? The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
Yes, I have been watching the lectures. They have been a great help. Thank you !
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