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Hi, which of these two are correct way to calculate direct material cost with loss or error?
Q: Direct material: $27. It is recognised that the estimates of direct materials costs may be subject to an error of + – 15%.
A #1: $27 x 1.15 = $31.50
or
A #2: $27 x 100/85 = $31.76
Thank you
Assuming that there is no other wording in the question, then
+ 15% is $27 x 1.15.
– 15% is $27 x 0.85
Thank you. I have one more question about cost. Which of these two answer is correct?
Question:
Direct labour : Each unit of product NP8 will require 0.50 hours of direct labour time. However it is expected that there will be unavoidable idle time equal to 5% of the total labour time paid for. Labour is paid $19 per hour.Production OH : It is expected that production overheads will be absorbed into product costs at the rate of $60 per direct labour hour, for each active hour worked. (Overheads are not absorbed into the cost of idle time).
Answer:
Production overheads: 0.5 hours x $60 = $30or
Production overheads: 0.5 hours x $60 x 0.95 = $28.50
Thank youFor overheads, it is 0.5 x $60.
For labour however it is 0.50 x 100/95 x $19.
Have you watched my free lectures on this? (and why are you attempting questions for which you do not have an answer – you should be using a Revision Kit from one of the ACCA approved publishers 🙂 )
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