Makhdoom Limited makes and sells a single product, Product Q, with the following standard specification for material, labour and production overheads. The information is related to recently prepared standard cost card.
1. Direct material X and Y are used in the quantities of 12kg and 8 kg respectively. Current price of material X is Rs. 40 per kg while material Y is Rs. 32 per kg.
2. It takes 20 hours of direct labour to produce one unit with standard direct labour rate of Rs. 10 per hour.
3. Annual sales/ production budget is 2,400 units evenly spread throughout the year. The standard selling price is based on current price of Rs. 1,250 per unit.
4. The budgeted production overhead, all fixed, is Rs. 288,000 and expenditure is expected to occur evenly over the year. Company’s policy is to absorb production overheads on direct labour hours.
The senior management has gathered information and takes decisions for handling current situation.
a. Due to increase in competition, it is expected that sales price will decline by 6%. In order to increase the production and sales volume, specific marketing campaign will be launched. It is expected that volume of production and sales will increase by 10%.
b. The prices of material X is expected to increase by 3%. However, an agreement has been made recently whereby 4% discount will be availed on purchase of material Y.
c. An agreement with trade union revealed that 8% increase in rate per hour will ensure 10% savings in time for production in one unit.
d. Fixed production overhead, are expected to increase by 5% due to inflation.
Required:
Calculate current and revised standard cost per unit.