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1.Predicted SP is $56
Desired mark up 25%
Material cost is estimated to be $16 before allowing for additional materials to allow of shrinkage of 20%( for every 10 kg of material going in, only 8 kg comes out)
Labour is the only other cost and 2 hrs are needed.What is the most the business can pay per labour hour, if the cost gap is to be avoided?
-The answer is $12.40
-I do have obtained the target cost which is $44.8
-Could you briefly explain what does “shrinkage of 20%” mean in the context and how to deal with it.2. Are lectures available for “relevant cost analysis”?
Thanks.
1. Shrinkage is the same was wastage. Therefore to allow for the waste, they will actually need to pay 10/8 x $16 for materials.
2. Of course – there are lectures on everything. They are a complete free course covering everything needed to be able to pass the exam well.
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