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A company uses standard costing. This year the standard labour cost of a product is 180.60$ p.u . The standard labour rate is $86 per hour . Last month 2200 hours were worked and there was an adverse labour efficiency variance of 8600$. This variance was caused entirely by new working practices introduced by the company . The full effect of the new working practices us to be incorporated into the new standard cost of the product for next year . In addition , a labour rate increase 10% is to be built into the new standard cost .
What’s the standard cost p.u of the product for next year ?A: 198.66 , B: 189.20 , C : 208.12 , D : 207.26$
My workings isActual hour worked @actual production 2200 hour (1000 unit x2.2$ )
Standard hour worked @ actual production 2100 ( 1000 x 2.1$ )And I don’t know what I should do next
The answer show the workings
( standard cost p.u : 86+10% x 2.2$ = 208.12) , but I don’t really get itCan you pls help ? Thanks Mr John
This year, the standard pay rate is $86 per hour and so next year it will be 86 + 10% = $94.60 per hour.
This year the standard hours = 180.60/86 = 2.1 hours per unit.
This year they worked 2,200 hours.
There was an adverse efficiency variance of $8,600 and so they must have worked 8600/86 = 100 hours more than they should have.
So they should have worked for only 2,100 hours which means they must have produced 2,100/2.1 = 1,000 units.
Since they actually worked for 2,200 hours, they were taking 2,200/1000 = 2.2 hours per unit, and this is the new standard for next year.Therefore the new standard cost is 2.2 hours x $94.60 per hour = $208.12 per unit.
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