Nemad Company decided to adopt a standard cost system. The production manager wanted to set standards to use during the next year for the production of selector lever assemblies. Each assembly contained eight slotted levers made of steel. Due to the high tolerances required, an average of 10 percent of the levers cut do not meet specifications and must be discarded. The steel lever stock cost was $0.45 per piece at the end of this year; each lever required one piece of stock.
The workweek for production workers at the Nemad Company was 40 hours. Included in this time were two daily 15-minute breaks. Management estimated that over the course of a year, an average worker would spend 15 percent of his or her nominal working time waiting for tools, for machine setups, and for necessary interruptions of work. Timestudy observations indicated that a worker could make a selector lever assembly in
12 minutes. Management estimated that workers under observation for time-study produce at about 90 percent of their normal rate. The average pay for production workers was $18 per hour.
Inflation was expected to increase production costs at a rate of about 4 percent for the next year. Production volume was level throughout the year.
Required:
What should be the direct material and direct labor standards for the manufacture of one selector level assembly for next year?
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