K Ltd manufactures Product 20K. Information relating to this product is given below.



Budgeted output for the year: 900 units
Standard details for one unit:
Direct materials: 40m² at $5.30 per m²
Direct wages: Bonding dept 24 hours at $5.00 per hour
Direct wages: Finishing dept 15 hours at $4.80 per hour



Budgeted costs and hours per annum are as follows:

$ Hours
Variable overhead
Bonding department 45,000 30,000
Finishing department 25,000 25,000
Fixed overhead apportioned to this product:
Production 36,000
Selling, distribution and administration 27,000



Note: Variable overheads are recovered (absorbed) using hours, fixed overheads are recovered on a unit basis.



Required:
Prepare a standard cost card in order to establish the standard cost of one unit of Product 20K and enter the following subtotals on the card:

prime cost

marginal cost

total absorption cost

total standard cost

Solution:


......

Solution:

Cost card

Direct material: 40 x 5.30 = 212
Direct wages:
Bonding 24 x 5 = 120
Finishing 15 x 4.80 = 72
Prime Cost 404

Variable overhead
Bonding 45000/30000 = 1.5
Finishing 25000/25000 = 1
Marginal cost 406.5

Fixed overhead
production 36000/900 = 40
non-production 27000/900 = 30
Total absorption cost 70
Total standard cost 476.5


I think I have answered it correctly :roll:

Sorry, I have missed something. :D So the solution is:

Cost card

Direct material:___________ 40 x 5.30 = 212
Direct wages:
Bonding ____________________24 x 5 = 120
Finishing __________________15 x 4.80 = 72
Prime Cost _________________________ 404

Variable overhead
Bonding ______45000/30000 = 1.5 x 24 = 36
Finishing _______25000/25000 = 1 x 15 = 15
Marginal cost _______________________455

Fixed overhead
production _____36000/900 = 40
non-production__27000/900 = 30
Total absorption cost __________________70
Total standard cost __________________ 525