A work order for 500 units of a commodity has to pass through three different machines for which the machine hour rates are:
Machine No. 1 – Rs. 1.00; Machine No. 2 – Rs. 2.00; and Machine No. 3 – Rs. 3.00.
The following expenses have been incurred on the work order:
Materials Rs. 10,500, Wages Rs. 1,000.
Machine No. 1 has been engaged for 250 hours
Machine No. 2 has been engaged for 150 hours
Machine No. 3 has been engaged for 120 hours
After the work has been completed, materials worth Rs. 500 are returned to the stores.
Office overheads used to be 40% of works cost. But on account of rise in the cost of administration, distribution and sale, there has been a 50% rise in the office overhead expenditure.
It is known that 10% of the production will have to be scrapped as not being up to the specification, and the sale proceeds of the scrapped output will be only 5% of cost of sales.
If the manufacturer wants to make a profit of 20% on the total cost of the work order, compute the selling price of a unit of commodity.