3 The Hi Life Co (HL Co) makes sofas. It hes recently received a request from a customer to provide a one-off order of sofas, in excess of normal budgeted production. The order would need to be completed within two weeks. The following cost estimate has already been prepared: Direct materials: Fabric Note 200 m2 at $17 per m2 50 m at $8-20 per m2 3.400 410 Direct labour: Skilled Semi-skilled Factory overheads Total production cost Administration overheads at 10% of total production cost Total cost 200 hours at $16 per hour 300 hours at $12 per hour 500 hours at $3 per hour 3,200 3,600 1,500 5 12,110 1,211 6 13,321 1 The fabric is regularly used by HL Co. There are curently 300 m2 in inventory, which cost $17 per m2. The current purchase price of the fabric is $17-50 per m This type of wood is regularly used by HL Co and usually costs $8-20 per m2, However, the company's current supplier's earliest delivery time for the wood is in three weeks' time. An alternative supplier could deliver immediately but they would charge $8-50 per m2, HL Co already has 500 m2 in inventory but 480 m2 of this is needed to complete other existing orders in the next two weeks. The remaining 20 m2 is not going to be needecd until four weeks' time 2 3 The skilled labour force is employed under permanent contracts of employment under which they must be paid for 40 hours' per week's labour, even if their time is idle due to absence of orders. Their rate of pay is $16 per hour, although any overtime is peid at time and a halt. In the next two weeks, there is spare capacity of 150 labour hours. 4 There is no spare capacity for semi-skilled workers. They are currently paid $12 per hour or time and a half for overtime. However, a local agency can provide additional semi-skilled workers for $14 per hour 5 The $3 absorption rate is HL Co's standerd factory overhead absorption rate, $1-50 per hour reflects the cost of the factory supervisor's salary and the other 50 per hour reflects general factory costs. The supervisor is paid an annuel salary and is also peid $15 per hour for any overtime he works. He will need to work 20 hours overtime if this order is accepted This is an apportionment of the general administration overheeds incurred by HL Co. 6 Required: Prepare, on a relevant cost basis, the lowest cost estimate which could be used as the basis for the quotation. Explain briefly your reasons for including or excluding each of the costs in your estimate. (10 marks)