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Hello sir,
can you please explain me the adjustment for directmaterial in the above question ? other all i got it .Currently the parts bought in cost $40.
Note 1 says that some of the parts can be replaced with standard parts, but that 20% can not be replaced with standard parts – so 80% can be replaced and cost 55% less.
So….of the $40, it means 80% which currently cost $32 (80% x 40) can be bought at 55% less cost. So they will cost 32 – (55% x 32) = $14.40.
The other 20% currently cost $8 (20% x 40). The can be bought from an alternative supplier who charges 10% less. So they will cost 8 – (10% x 8) = $7.20
So the total cost for materials will be $14.40 + $7.20 = $21.60.
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