Answer:

There is an example given below

Explanation:

A company developed single jersey cotton fabric for the kids wear garment. The company sourced 2000 kg of yarn and the price of the yarn is Tk. 240 / kg. The knitting industry works with 5 weft knitting machine with the production CAPACITY of 85 kg / machine. The average waste percentage expected during the operation is 3%. The company works with 5 operators and 2 helpers with the wage of Tk. 250 and Tk. 150 per shift, respectively. Calculate the cost of knitting process per kilogram with 20% profit if the company spends Tk. 5000 / MONTH for rent, Tk. 3000 / month for electricity and Tk.15,000 / month as other expenses. ASSUME company works 26 days per month.

Solution:

Step 1: Number of shifts required to complete the order.

Total production per day = Average machine production × Number of machines

= 85 × 5 = 425 kg / shift

The wastage percentage expected = 3%

Hence, 2000 kg – (3% of 2000 kg) = the original quantity produced

= 2000 – (2000 x 3/100)

= 1940 kg

Total yarn quantity

Total number of shifts required = ----------------------------------------------------------

Production capacity per shift

2000

= ---------------

425

= 4.7 shifts

Step 2: Calculate total labour cost

The labour cost = No. of labours × No. of shifts worked to complete order × Wages/shift

= Cost of operators + Cost of helpers

= (5 ×4.7× 250) + (2 ×4.7× 150) = Tk. 5875 + Tk.1410 = Tk. 7285

Step 3: Calculation of direct material cost

Yarn purchased = 2000 kg with the price of Tk. 240 / kg

= 2000 × 240 = Tk. 4,80,000

Step 4: Calculation of overheads

Company spends all these overheads per month (26 days). Since, the company works one shift per day, The 1 day or 1 shift expense as overhead is as follows,

5000 + 3000 + 15,000

Overheads = ----------------------------------------

26

= Tk. 884.61

Since, the company works 4.7 shifts for this order,

= 884.61 × 4.7 shifts = Tk. 4157.69

Step 5: The overall cost of the knitting process

Material cost + Labour cost + Overheads

The total knitted fabric cost / kg = --------------------------------------------------------------------------

Total production

4,80,000 + 7285 + 4157.69

Fabric cost / kg = ----------------------------------------

1940

= Tk. 253.32

Labour cost Overheads

Knitting cost / kg = ----------------------------------

Total production

7285 + 4157.69

= -------------------------------

1940

= Tk. 5.89

Knitting RATE / kg = 5.89 × 20% profit= 5.89 + (5.89× 20/100) = Tk. 7.07