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Hello, I have two questions relating to questions in my kit that I was hoping someone could help explain?
Q1) Budgeted sales of X for December are 18,000 units. At the end of the production process for X, 10% of productions units are scrapped as defective. Opening inventories of X for December are budgeted to be 15,000 units and closing inventories will be 11,400 units. All inventories of finished goods must have successfully passed quality control check. What is the production budget for X for December?
I reached the answer 15,840 units but the answer is 16,000 units.
Q2) A company manufactures a single product, M. Budgeted production output of product M during August is 200 units. Each unit of product M requires 6 labour hours for completion and PR Co anticipates 20% idle time. Labour is paid at rate $7/hour. What is the direct labour cost budget for August?
I reached the answer $6720 but the answer is $10,500. The answers note that 20% idle time = 25% active time, but I have no idea how you can come to the conclusion that it = 25% active time.
Thanks!
“someone” is always going to beam if you ask in the Ask the Tutor Forum, because I am the tutor 🙂
Question 1:
If there had not been defectives then the production would have been 18,000 + 11,400 – 15,000 = 14,400
Therefore the actual production budget must be 14,400 / 0.9 = 16,000
(The inventories had already passed the check)For every 100 hours that they pay for, only 80 hours are actually worked.
So putting it the other way round, for every 80 hours that they work there are are 20 hours idle, which is 20/80 or 25% idle 🙂
Hope that helps 🙂
Thanks for the quick response, John!
For Q1, using 18,000 + 11,400 – 15,000 = 14,400, plus 10% defective… would the answer still not be 15,840 units? If 10% of 14400 is 1440, then 14400+1440=15840?
For Q2, I understand the concept you have illustrated, but I would have a hard time coming to that conclusion from just reading the question. The way I read it, I gather than the question implies 20% idle time of total hours, rather than 100 hours. Is there a trick to the question or should I just memorise this logic for similar types of questions?
Thanks again for your help! 🙂
Question 1:
The 14,400 is after having 10% defective. So the 14,400 is the remaining 90%Question 2:
It is quite a common occurrence in the exam I am afraid 🙂
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