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EDWARD CO
Assembly labour – these are skilled people who are difficult to recruit and retain. Edward
Limited has more staff of this type than needed but is prepared to carry this extra cost in
return for the security it gives the business. It takes 30 minutes to assemble a radio and the
assembly workers are paid $12.60 per hour. It is estimated that 10% of hours paid to the
assembly workers is for idle time.Good day,i am having issues with this part of a section C question called edward co which is a target costing question.The idle time was adjusted for in the solution but i don’t understand why since we will still pay the full cost to the skilled labour inorder to get the estimated cost
Assembly labour
(30/60 × $12.60/hr × 100/90)= 7.0This is the solution but i don’t understand it
For every 10 hours of labour that they pay for, 1 hour will be idle and therefore they will only get 9 hours of work.
Putting it the other way round, to get 9 hours of work they will have to pay for 10 hours of labour.
Therefore every 9 hours of work will cost them 10 hours at $12.60 per hour.
For 0.5 hours of work it will therefore cost them 0.5 x 10/9 x $12.60 = $7
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