Lovitz Company is planning to produce 2,000 units of product in 2012. Each unit
ID: 2511134 • Letter: L
Question
Lovitz Company is planning to produce 2,000 units of product in 2012. Each unit requires 3 kilograms of materials at $6 per kilogram and a half hour of labour at $14 per hour. The overhead rate is 70% of direct labour Calculate: Direct material cost per unit:$ per unit Total kilograms of direct materials for 2,000 units: ograms Total direct materials cost for 2,000 units:$ Direct labour cost per unit:$ per unit Total direct lbour hours for 2,00 units hours Total direct labour cost for 2,000 units: $ Overhead rate per direct labour hour:$ per hour Overhead rate per unit:$ per unit Total overhead cost for 2,000 units:$ Compute the standard cost of one unit of product. $
Explanation / Answer
1. Since each unit requires 3 kg materials and each kg costs $6 the direct material cost per unit = 6 x 3 =$18.
2. Each unit requires 3kg materials and hence 2000 units require 2000 x 3 = 6000 kgs
3. Each unit direct materials cost is $18. So 2000 units direct materials cost = 2000 x 18 = $36000
4. Labour cost per hour =$14 and cost per half an hour = 14/2= $7. Each unit requires half an hour labour and so direct labour cost per unit = $7
5. Direct labour hours per unit = 1/2 hour. So direct labour hours for 2000 units = 2000 x 1/2 = 1000 hours.
6. Labour cost per unit = $7. So direct labour cost of 2000 units = 2000 x 7 = $14000.
7. Overhead rate per hour is 70% of direct labour cost per hour. So overhead cost per hour = 14 x 70% = $9.8 per hour.
8. Overhead rate per unit = labour cost per unit x 70% = 7 x 70% =$4.9 per unit.
9. Total overhead cost per 2000 units = $4.9 x 2000 = $9800
10. Standard cost per unit is the sum of direct materials cost per unit, direct labour cost per unit and overhead cost per unit. So standard cost per unit = 18 + 7 + 4.9 = $29.9
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