Question

d) A certain production process takes two stages 1 and 2. In a given period 5,000 units were introduced in process one and the costs indicated were incurred. 4,650 units were transferred to process 2 and additional costs incurred as indicated in the table. From experience process loss for process 1 amount to 10% with no loss anticipated for process 2. 4,480 units were successfully completed.
Required: Compute the cost per unit of the complete units assuming that defective units are sold at ksh 20 per unit (10 mks)

Process 1 Process 2 Total costs
Rm 100,000 150,000 250,000
Labor 50,000 50,000 100,000
Overheads 50,000 20,000 70,000
420,000

Answer 1

The cost per unit of the complete units assuming that defective units are sold at Ksh 20 per unit is Rm 93.73.

What is the cost per unit with defective units?

The cost per unit with defective units can be computed by subtracting the sales value of the sold defective units from the total production costs, thereby reducing the total production costs, and then dividing the resulting figure by the number of good units.

Data and Calculations:

                               Process 1              Process 2          Total costs  

Materials             Rm 100,000              150,000              250,000

Labor                          50,000                50,000              100,000

Overheads                 50,000                20,000                70,000

Total costs                                                                        420,000

Input units = 5,000

Output units = 4,480

Defective units = 520 (5,000 - 4,480)

Sales revenue from defective units = Rm 104 (520 x Rm 0.20)

Cost per unit = Rm 93.73 (Rm 420,000 - Rm 104)/4,480

Thus, the cost per unit of the complete units assuming that defective units are sold at Ksh 20 per unit is Rm 93.73.

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