A Company Is Setting Its Direct Materials and Direct Labor

question 7

Multiple Choice

A company is setting its direct materials and direct labor standards for its leading product.Direct materials cost from the supplier are $5 per square foot,net of purchase discount.Freight-in amounts to $0.40 per square foot.Basic wages of the assembly line personnel are $17 per hour.Payroll taxes are approximately 22% of wages.Benefits amount to $4 per hour.How much is the direct materials cost standard per square foot?

• A) $5.40
• B) $5.00
• C) $21.00
• D) $26.00

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Definitions:

Substitute Resource

Alternative resources or inputs that can be used in place of another in the production process to produce a similar type of output.

Productivity

The efficiency with which input resources are converted into outputs, often measured as the ratio of output to input in a given time period.

Law of Diminishing Returns

The principle that as investment in a single factor of production increases, holding all others constant, the incremental gains in output will eventually decrease.

Law of Diminishing Marginal Utility

states that as a person consumes more of a good or service, the utility (satisfaction) gained from each additional unit decreases.