ACCA Applied Knowledge · Management Accounting · Standard costing system
A company makes one product. Each unit needs 4 kg of material. Normal waste in production is 20% of the input material. The material price is $6.00 per kg. What is the standard material cost per unit of good output, if 4 kg is the net quantity contained in each good unit?
The standard material cost is $30.00 per unit. Since waste is 20% of input, good output is 80% of input, so 4 kg net requires 5 kg of input (4 divided by 0.8). Multiplying 5 kg by $6.00 gives $30.00.
- A$24.00
- B$28.80
- C$30.00Correct
- D$19.20
Explanation
Normal waste of 20% of input means good output is 80% of input. Input required = 4 / 0.80 = 5 kg. Cost = 5 x $6.00 = $30.00. Option $28.80 comes from adding 20% to 4 kg (4.8 kg) instead of treating waste as a percentage of input. $24.00 ignores waste.
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