Clearly write

Q.7. (a) What is an idle capacity? What are the costs associated with it? How are these treated in product costs? (b) Sunshine Ltd. buy and sell finished goods after carrying out some operations. They began the year with 3,000 units valued at 3 per unit. During the year they sold 25,000 units for an average sale price of 10 per unit. Purchases were as follows: 4,000 units @ 35 per unit 16,000 units @6 per unit 6,000 units @ 37 per unit The current replacement cost of the unit is 78 and the Company's Taxation Manager advises that there may be significant tax advantages of purchasing at year-end at this price, as the company uses the LIFO method and has got the acceptance of the tax authorities for consistently using this method in its assessments. The corporate tax averages 30%. Bearing in mind that the warehouse space is limited to 10,000 units, work out the tax advantages and the cost of year-end purchasing under this situation given that the operating expenses for the year are 37,000