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1

At the end of March there were 2000 completed units and 250 partly completed units;

The partly completed units were complete for materials but direct labour was 70% competed and variable production Overheads were 50% complete.

The costs were:

Direct materials £18000
Direct Labour £19575
Variable Overheads £10625

What is the cost per unit?
Show your workings.

First, we must calculate the equivalent units and cost per unit m for each element:

Direct materials

250 * 100% = 250

250 + 2000 = 2250

£18000/2250= £8 direct materials cost per unit.


Direct labour

250 * 70%= 175

175 + 2000= 2175

£19575/2175= £9 direct labour cost per unit

Variable Overheads

250 * 50% = 125

125+2000= 2125

£10625/2125= £5 variable Overheads cost per unit

So, £22 per unit.

2

If the initial cash outflow is £30000;
Year one Neyd cash inflow is £18000, Year two is £10000 and year three is £7500;
What is the payback period?

At the end of year two we can see that we still have £2000 to payback and the net cash inflow for year three is £7500, so:

(£2000/£7500)*12 months = 3.2 months

Payback period is always rounded up to be nearest month so the payback method will be 2 Years and 4 months.