Question
A company has been asked to carry out a special order. Completion of the order would require: 1. Raw materials: $ 180 kg of material
A company has been asked to carry out a special order. Completion of the order would require:
1. Raw materials: $ 180 kg of material M6* from inventory, bought at $1640 per kg 2,952 400 kg of material M2 to be purchased at $1430 per kg 5,720 8,672 * Material M6 is used on a regular basis by the company. The current replacement price is $1690 per kg.
430 direct labour hours. The direct operatives, paid at $11 per hour, would have to be transferred from working on another project which would have generated a contribution of $1,960.
Incremental overheads of $250 per direct labour hour.
General fixed overheads are absorbed at a rate of $14 per direct labour hour. The company must make a decision on whether to accept the special order. Required:
Calculate the relevant cost of the special order for the purpose of making the decision. (10 marks)
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