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Can you please explain the calculation of Material Cost for the following extract?
Direct material will be $600 per unit for the first 300 units produced. The second 300 units will cost 80%of the cost per unit of the first 300 units. All units from then on will cost 80% of the unit cost for each of the second 300 units.
I did not understand the calculation for last 800 units.
Thanks
Ans:
Direct material cost (W1) 631,200
(W1)
Direct material cost
=
(300 x 600) + (300 x 600 x 80%) + (800 x 600 x 80% x 80%)The cost per unit for the first 300 is $600
The cost per unit for the second 300 is $600 x 80% = $480 – you say that you are OK with this.
The cost for further units is 80% x $480 per unit (which is the same as 80% x 80% x $600)
Thanks… That makes sense..However I got confused with the wordings – unit cost for each of the second 300 units.
Thanks 🙂
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