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Dear sir,
Can you help me with this question : about the material cost which should be $20?The predicted selling price for a product has been set at $56 per unit. The desired mark-up
on cost is 25% and the material cost for the product is estimated to be $16 before allowing
for additional materials to allow for shrinkage of 20% (for every 10 kg of material going in
only 8 kg comes out). If labour is the only other cost and 2 hours are needed what is the
most the business can pay per hour if a cost gap is to be avoided?If the material cost is $16 before allowing for the shrinkage, then it means that for every 8kg needed then they will have to buy 10kg.
So since the cost per kg is 16/8 = $2. The amount they will actually have to buy is 10kg and this will cost 10 x $2 = $20.
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