Jay Bole is in the process of developing a standard for the labour cost of one unit of Product X. According to the design manual, it takes a skilled worker 30 minutes to produce one unit of Product X when the workshop is operating at peak condition. However, Product X is quite complex and even a skilled worker operating in high efficiency often needs another 5 minutes to adjust the tools, re-oil the machine and rework some aspects of the product. A skilled worker is paid $30 per hour, while the company pays 20 per cent on-costs on top of this.
Jay decides to develop a perfection standard. The standard labour cost for one unit of Product X is
A) $15.
B) $17.50.
C) $18.
D) $21.

Question

Quizplus · Accepted Answer

The actual time taken to produce one unit of Product X is 30 + 5 = 35 minutes.

The cost of one skilled worker for 1 hour is $30 + 20% on-costs = $36.

To convert this to the cost for 1 minute, we divide by 60:

$36/60 = $0.60 per minute.

Therefore, the labour cost for 35 minutes is:

35 minutes x $0.60 per minute = $21.

However, Jay is developing a perfection standard, which takes into account the ideal time it should take to produce one unit of Product X. In this case, the ideal time is 30 minutes, since the extra 5 minutes are due to adjustments and reworking which are not part of the standard process.

Therefore, the standard labour cost for one unit of Product X is:

30 minutes x $0.60 per minute = $18.

Hence, option C is the correct choice.

Jay Bole Is in the Process of Developing a Standard