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Math Help - Another accounting question

  1. #1
    Member princess_anna57's Avatar
    Joined
    Jul 2007
    Posts
    78

    Another accounting question

    Darmor Ltd has three products that require the same production facilities. Information about their per unit production costs is as follows:

    Product A:
    Labour - Skilled: $18
    Labour - Unskilled: $6
    Materials: $36
    Variable overheads: $9
    Share of fixed overheads: $15
    Product B:
    Labour - Skilled: $27
    Labour - Unskilled: $12
    Materials: $75
    Variable overheads: $21
    Share of fixed overheads: $30
    Product C:
    Labour - Skilled: $9
    Labour - Unskilled: $30
    Materials: $42
    Variable overheads: $21
    Share of fixed overheads: $30

    All labour and materials are variable costs. Skilled labour and unskilled labour are paid a basic rate of $18 and $12 an hour respectively. The labour costs per unit, shown above, are based on basic rates of pay. Skilled labour is scare, so the company could not sell more than the maximum it can make of any of the three products. Product A is sold in a regulated market and the regulators have set a price of $90 per unit for it.

    a) State, with supporting workings, the price the company must charge for products B and C to reach the point where making and selling any of the three products makes no difference.
    b) State, with supporting workings, the maximum rate of overtime premium that the company would logically be prepared to pay its skilled workers to work beyond the basic time.
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  2. #2
    Newbie
    Joined
    Jan 2009
    From
    Florida
    Posts
    20
    In problem A, it looks like they are trying to get you to find the break-even point per unit... Which if we look at A, we get 84$ in costs,with a selling price of 90$.

    $18
    $6
    $36
    $9
    +$15
    $84

    Which means that the break-even point would be 6$ (With a price set at 90$)

    Which means that if you add up total costs of the other products, and then add 6$ to that, you should have your answers to pricing B and C... But, that's just how the problem reads to me...
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