Question

Question 1 options:

a) Consider the elements of cost in Geordie Ltd, namely, the cost of a product, the cost of direct labour and the cost of non-labour expenses (usually referred to as the overhead). In this company the material cost of a product is $6 less than thrice the cost of the direct labour; and the overhead is 3/4 of the direct labour cost. Knowing that the total cost of the product is $120, compute the amount of the material cost of the product, rounded to nearest 100-th.

b) Consider the elements of cost in Geordie Ltd, namely, the cost of a product, the cost of direct labour and the cost of non-labour expenses (usually referred to as the overhead). In this company the material cost of a product is $6 less than thrice the cost of the direct labour; and the overhead is 3/4 of the direct labour cost. Knowing that the total cost of the product is $120, compute the amount of the overhead rounded to nearest 100th.


c) Consider the elements of cost in Geordie Ltd, namely, the material cost of a product, the cost of direct labour and the cost of non-labour expenses (usually referred to as the overhead). In this company the material cost of a product is $6 less than thrice the cost of the direct labour; and the overhead is 3/4 of the direct labour cost. Knowing that the total cost of the product is $120, compute the amount of the direct labour rounded to nearest 100-th.

Answer 1

Solution

a. Computation of the amount of the material cost of the product:

Total cost of product = $120

Total cost of product = cost of material + direct labor + overhead

Cost of material = (3 x direct labor) - $6

Overhead = ¾ of Direct labor

Total cost of product = 3DL - $6 + DL + ¾ of DL

$120 = 3DL - $6 + DL + 0.75 DL

$126 = 4.75 DL

Direct Labor = 126/4.75 = $26.53

Material cost = 3 x $26.53 - $6 = $73.58

b. Computation of the amount of the overhead:

Overhead = ¾ x $26.53 = $19.89

c. Computation of the amount of direct labor:

Direct Labor = 126/4.75 = $26.53