A process was charged with 10,000 kg of material costing $46,000 and conversion costs of $18,000. Normal loss is 8% of input and can be sold as scrap for $2 per kg. Actual output was 9,100 kg. What is the cost per kg of expected output, to the nearest cent?

Correct answer: C) $6.78

Explanation

Expected output = 10,000 x 92% = 9,200 kg. Normal loss = 800 kg with scrap value 800 x $2 = $1,600. Cost per kg = ($46,000 + $18,000 - $1,600) / 9,200 = $62,400 / 9,200 = $6.7826, which is $6.78 to the nearest cent. Actual output is not used in calculating the rate; the 100 kg shortfall is an abnormal loss valued at this rate.