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02:12 < More cost 202 ues Ion e Walitato (pty) Ltd has been offered a contract which, if accepted, would significantly incr ease next year's activity The contract requires the production Of 20 tons Of produc t XX and specifies a Contract priceof NSIOO per kg. The resources used in the production Of each kg of XX include: eSource per kg Of xx St per hour abour: aterial: rade 1 rade 2 hours hours units 1 litre Grade 1 labour is highly-skilled and is currently underutilised in the firm. It is Walitato's p Olicy to continue to pay Grade labour in full. Acceptance Of the contract would reduce the idle timeof Grade 1 labour. Idle time payment is treated as non-production overheads. Grade 2 is unskilled labour, with a high turnover, and may be considered a variable cost. The materials required to fulfil the contract would be drawn from those materials already in stock. Material A is widely used within the firm regularly. Material B was purchased to fulfil an expected Order which was not received; if material B is not used for the contract i t will be sold. For accounting purposes, FIFO is used. The various values and costs for m aterial A and B are: arrying value eplacement cost realizable value (NS) per unit 10 9 (NS) per unit 30 32 25 A single recovery rate for fixed factory overheads is used throughout the firm, even thoug h some fixed production overheads could be attributed to single products or department s. The overhead is recovered per productive labour hour, and initial estimates Of next yea ds activity, which excludes the contract, show fixed production overheads to be NS600 00 O, with productive labour hours Of 300 000. Acceptance Of the contract would increase fi Xed production overheads by NS228 000. Variable production overheads are accurately e stimated at N$3 per productive labour hour on all products. Acceptance Of the contract would be expected to encroach on the sales and production 0 f another product Y Y, which is also made by Walitato. It is estimated that sales Of YY wo uld then decrease by 5 000 units in the next year only. However, this forecast reduction in sales Of YY would enable fixed factory overheads Of N$58 000 to be avoided. Informatio n on YY is as follows: ales abour- Grade 2 aterials-relevant variable costs Required: Calculate the opportuniO cost in total if any, related me contract. r unit $70 hours $12 Edit o Save as Fit screen O Search