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i have 2 questions-
1)a job requires 4590 actual labour hours for completion and it is anticipated that there will be 10% of idle time.if the wage rate is $8 per hour,what is the budgeted labour cost?
2)a job requires 380 active labour hours to complete.it is expected that there will be 5% idle time.the wage rate per hour $6 per hour.what is the labour cost?
can u send the answers if possible with a brief explanation.
1. For every 100 hours paid, there will be 10 idle hours and therefore only 90 hours will be worked.
Putting it the other way round, for every 90 hours of work they need to pay for 100 hours.Therefore if they need 4,950 hours of work they will have to pay for 100/90 x 4950 = 5,500 hours at the rate of $8 per hour. So a total cost of $44,000.
2. The logic is exactly the same. So they will have to pay for 100/95 x 380 = 400 hours at $6 per hour.
is there a difference between actual labour hours and active labour hours in the above Qs?
‘actual labour hours for completion’ and ‘active hours’ both mean the same thing.
Good day John and thank you for all the free lecture ?
My question is: how did the 100 come about since it wasn’t stated in the question.
What I did earlier was
10% X 4590 = 459.Then I subtracted 459 from the 4590 hours given = 4131
Next, 4131 X $8 = $33,048.
Could you explain why you used a 100 as the Margin part of Cost-Plus Pricing is a bit of a challenge considering you used the same method of using a 100.
Thank you.
Hi Winifrede.
Im not John but looking after this CIMA board at the moment.
The 100 hours has come because its representing a percent (out of 100)
So
90 hours of 100 is 90% ( and 10 hour is 10% idle)The fraction for ‘grossing up’ either in idle time situations like this or for material wastage calculations is always to multiply by the fraction of 100 on the top and underneath (100 – %wastage/idle time)
So for 5% idle time – it means 5 out of 100 is idle – so we need to gross up the hours by x 100/95
Johns calcs in the original explanation are definitely correct- I can see how you are thinking but Im afraid its incorrect use of % in this case.
Many Thanks
Cath
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