Company has an inventory of 470 assorted parts for a line of missiles that has been

discontinued. The inventory cost is 35,000 and it is no longer used. The parts can be

either (a) re-machined at total additional costs of 23,500 and then sold for 28,000 or

(b) sold as scrap for 3,900. Which action is more profitable? Show your calculations

(1 marks)

B. A truck, costing 120,000 and uninsured, is wrecked its first day in use. It can be either

(a) disposed of for 14,000 cash and replaced with a similar truck costing 124,000 or (b)

rebuilt for 98,000, and thus be brand-new as far as operating characteristics and looks

are concerned. Which action is less costly? Show your calculations (1 marks)

C. Matilda Engineering Ltd is tendering for a contract that will require the use of 280 units

of Component KX. This component is not normally used by the business, however, 190

units are currently held as inventories following a cancelled order. These units cost the

business 95 each. The business has no other use for these units and so it is considering

selling them for 32 each. The current replacement cost of the units is 74 each.

What is the total relevant cost of Component KX for the purposes of the contract

tender? (2 marks)

D. MM Consultancy Service has been asked to quote a price for a contract that will take

two weeks to complete. Information relating to staffing for the contract is as follows:

Grade of staff Hours required

Basic

rate/hour

Manager 60 52

Senior Analyst 30 28

Junior Analyst 20 24

A shortage of managers means that the necessary staff to undertake the contract would

have to be moved from other work that is currently generating an excess of 30 per

hour.

Senior analysts are currently being paid their normal salaries to undertake work suitable

for junior analysts. If the relevant members of staff are moved to work on the contract,

junior analysts will have to be employed for the period to replace them, however junior

analyst will only work if overtime of 30% is paid.

The junior analysts actually needed to work on the contract will be specifically employed

for the period of the contract.

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