5000 kgs of raw material were bought at Rs.2.5 per kg and 10% is normal waste. If recovery value of the normal waste is Rs.1.2 per kg, then find the cost of 800 units which consumes 1.5 kg unit material?

Solution

Step 1 : calculate actual material requirement for 800 units to be produced =800*1.5 = 1200 kg. Step 2: calculate adjusted requirement given 10% wastage, to produce 800 units = the 1200 kg will represent only 90% of the requirement, as such, the 100% material will be 1200/90% = 1333 kg (1200 kg actual requirement and 133 kg of wastage) Step 3: Cost of 1333 kg = 1333*2.5 = Rs.3332.5 Step 4 : calculate recovery from 133 kg of normal waste = 133*1.2 = Rs.159.6 Step 5: actual cost = material cost – recovery from wastage = 3332.5 – 159.6 = Rs.3172.9 or 3173