Question

Al Jassar Manufacturing and Trading LLC, established in 2002, is one of the leading manufacturer of plastic pipes in Oman. The company established a standard costing system to control the costs. The standard material and labour requirements for one of its product is as under :

The company uses three materials L, M and N to produce the finished product. It requires 15 Kgs of L, 20 Kgs of M and 30 Kgs of N to produce hundred units of finished products. The standard purchase price per Kg of the material L, M and N is RO 24, RO 18 and RO 15 respectively.

The company has appointed three categories of labour to produce the products. Two skilled, four semi-skilled and three unskilled workers together produce ten units in three hours. The standard labour rate per hour amounts to RO 25, RO 15 and RO 5 for skilled, semi-skilled and unskilled workers respectively. The labour force worked is expected to work for 2700 hours during the year.

The variable overheads are charged at the standard rate of RO 1.5 per skilled labour hour. The annual budgeted Fixed Overheads amount to RO 45,000 and are charged based on the standard/budgeted output.

The management of the company wants to estimate the standard cost of producing the product to fix the selling price of the product. The company’s policy is to have a mark-up of 20% on its products. You are required to estimate the standard cost per unit of the finished product and determine the selling price of the product as per the company’s policy.

Answer 1