The chief financial officer for Cast In Stone concrete products had previously e

Question

The chief financial officer for Cast In Stone concrete products had previously established a line of credit with a local bank that enables Cast In Stone to borrow 80% of the company's inventory balance. The company currently has 1,000 units in stock, and is performing "on budget." The budget anticipated that direct labor cost would be $15 per hour, and factory overhead is applied to production based on $7.50 material costs $0.10 per pound. Determine the amount of credit available under the borrowing agreement.

Explanation / Answer

Calculation of amount available under Line of credit Units Per unit cost Per Unit total Direct Material (in pounds) 0.8 $0.10 $0.08 Direct Labour (in hours) 2.5 $15.00 $37.50 Factory Overhead (50% of direct labour cost) $18.75 Total per unit cost $56.33 Total Units in stock $1,000.00 Value of stock $56,330.00 Total available under line of credit (80% of value of stock) $45,064.00

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