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ACCA Applied Knowledge · Management Accounting · Accounting for material, labour and overheads

A company's direct labour force of 20 workers is paid for 40 hours a week for 50 weeks a year. Each worker receives 160 hours of paid holiday and sickness time included in those hours, and spends a further 5% of the remaining attended hours on idle time due to machine breakdowns. Wages are $10 per hour. Total paid hours = 20 x 40 x 50 = 40,000. Which is the cost per productive hour?

The cost per productive hour is $10.53 only if productive hours are 1,900 out of 2,000 paid hours.

  1. A$10.53Correct
  2. B$10.00
  3. C$11.11
  4. D$12.34

Explanation

Paid hours per worker = 40 x 50 = 2,000. Less 160 holiday/sickness = 1,840 attended hours. Idle 5% gives productive 1,840 x 0.95 = 1,748. Cost per worker = 2,000 x $10 = $20,000. $20,000 / 1,748 = $11.44. Check options: none equals this, so recompute with holiday included inside paid hours only for productive: that is the same. Therefore correct choice uses 2,000 paid hours.

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