This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
a) Calculate the expected output in kilos Step 1: Calculate normal loss in kilos. Normal loss is 10% of input materials. Normal loss = 10\% × 5,000 kilos = 0.10 × 5,000 kilos = 500 kilos Step 2: Calculate expected output. Expected output is input materials minus normal loss. Expected output = 5,000 kilos - 500 kilos = 4,500 kilos The expected output is 4,500 kilos. b) The abnormal loss/gain in kilos Step 1: Compare actual output with expected output. Actual output = 4,650 kilos Expected output = 4,500 kilos Since actual output is greater than expected output, there is an abnormal gain. Step 2: Calculate abnormal gain. Abnormal gain = Actual output - Expected output Abnormal gain = 4,650 kilos - 4,500 kilos = 150 kilos The abnormal gain is 150 kilos. c) The cost per kg (NET INCOME METHOD) Step 1: Calculate the scrap value of normal loss. Scrap value per kilo = KSh 2.7 Normal loss = 500 kilos Scrap value of normal loss = 500 kilos × KSh 2.7/kilo = KSh 1,350 Step 2: Calculate the net cost. Total cost incurred = KSh 40,500 Net cost = Total cost incurred - Scrap value of normal loss Net cost = KSh 40,500 - KSh 1,350 = KSh 39,150 Step 3: Calculate the cost per kg. The cost per kg is calculated by dividing the net cost by the expected output (good units). Cost per kg = Net costExpected output Cost per kg = KSh 39,1504,500 kilos = KSh 8.70/kilo The cost per kg is KSh 8.70.