AMA

AMA

437 Laubition 12: PQR Ltd. has been offered a contract, if accepted, would significantly increase next wear's activity levels. The contract requires the production of 20,000 kg of product X and specifies a contract price of 100 per kg. The resources used in the production of each kg of X include the following: Resources per al product X 2 hours 7 hours 2 units 1 litre ch in the firm, you he contract would Candelabour is highly skilled and although it is currently under utilised in the FORL policy to continue to pay grade i labour in full. Acceptance of the contrad hele time of grade I labour. Idle time payments are treated as non-production woh Crdezkum Litled labour with a high turnover and may be considered a variable coe The costit Ayles of each type of labour are: Grade 14 per hour Grade 2.72 per hour The material required to fulfill the contract would be drawn from those materials als och Material A is widely used within the firm and any usage for this contract will neces replacement. Material B was purchased to fulfil an expected order that was not recen material is not used for the contract, it will be soll. For accounting purposes FIFO is used. The values and costs for A and Bare Per unit Per tre Back value Replacements Nerohe value Asingle recovery rate for ford factory overheads is used throughout the firm even through some fard production overheads could be attributed to single products or departments. The overheadh recovered per productive labour hour and initial estimates of next year's activity (which exclude the current contrad) how faed production overheads of 6,00,000 and productive labour boun of 100.000. Acceptance of the contract would increase fixed production overheads by 22.000 Variable production overheads are accurately estimated at 3p productive hour Acceptance of the contract would be expected to encroach on the sale and production d another product that is also made by POR Lad. It is estimated that sales of Y would then deca by 5.000 units in the next year only. However, this forecast reduction in sales of Y attributable fred factory overheads of 58,000 to be avoided. Information on Yistolle uld enable Sales pria Per un Labour Grade 2 Materialevant costs 4 hours 70 Required Advise POR Lad on the desirability of the contract Answer: 20.0001