Course Management Accounting Need Urgent Question No 4 The Ahsan Co makes beds It has recently received a request from a customer to provide a one off order of sofas, in excess of normal production The following notes are relevant Notes The fabric is regularly used by Ahsan Co There are currently 200 m 2 in inventory, which cost Rs 18 per m 2 The current purchase price of the fabric is Rs 18 50 per m 2 400 m 2 of fabric is required for the project Wood is regularly used by the Co and usually costs Rs 8 20 per m 2 However, the companys current suppliers earliest delivery time for the wood is in three weeks time An alternative supplier could deliver immediately but they would charge Rs 8 50 per m 2 Ahsan Co already has 1000 m 2 in inventory but 980 m 2 of this is needed to complete other existing orders in the next two weeks The remaining 20 m 2 is not going to be needed until four weeks time 100 m 2 of wood will be required by the project 400 hours of skilled labor is needed The skilled labor force is employed under permanent contracts of employment under which they must be paid for 40 hours per weeks labor, even if their time is idle due to absence of orders Their rate of pay is Rs 20 per hour, although any overtime is paid at double In the next two weeks, there is spare capacity of 300 labor hours 600 hours of semi skilled hours is required There is no spare capacity for semi skilled workers They are currently paid Rs 16 per hour or double for overtime However, a local agency can provide additional semi skilled workers for Rs 20 per hour Rs 5 absorption rate is standard factory over head absorption rate Rs 2 50 per hour reflects the cost of the factory supervisors salary and the other Rs 2 50 per hour reflects general factory costs The supervisor is paid an annual salary and is also paid Rs 16 per hour for any over time he works He will need to work 20 hours overtime if this order is accepted 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

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Course: Management Accounting Need Urgent Question No. 4 The Ahsan Co. makes beds. It has recently received a request from a customer to provide a

Course: Management Accounting

Need Urgent

Question No. 4

The Ahsan Co. makes beds. It has recently received a request from a customer to provide a one-off order of sofas, in excess of normal production. The following notes are relevant:

Notes:

The fabric is regularly used by Ahsan Co. There are currently 200 m² in inventory, which cost Rs.18 per m². The current purchase price of the fabric is Rs.18.50 per m². 400 m² of fabric is required for the project.
Wood is regularly used by the Co. and usually costs Rs.8.20 per m². However, the companys current suppliers earliest delivery time for the wood is in three weeks time. An alternative supplier could deliver immediately but they would charge Rs.8.50 per m². Ahsan Co. already has 1000 m² in inventory but 980 m² of this is needed to complete other existing orders in the next two weeks. The remaining 20 m² is not going to be needed until four weeks time. 100 m² of wood will be required by the project.
400 hours of skilled labor is needed. The skilled labor force is employed under permanent contracts of employment under which they must be paid for 40 hours per weeks labor, even if their time is idle due to absence of orders. Their rate of pay is Rs.20 per hour, although any overtime is paid at double. In the next two weeks, there is spare capacity of 300 labor hours.
600 hours of semi-skilled hours is required. There is no spare capacity for semi-skilled workers. They are currently paid Rs.16 per hour or double for overtime. However, a local agency can provide additional semi-skilled workers for Rs.20 per hour.
Rs.5 absorption rate is standard factory over head absorption rate; Rs.2.50 per hour reflects the cost of the factory supervisors salary and the other Rs.2.50 per hour reflects general factory costs. The supervisor is paid an annual salary and is also paid Rs.16 per hour for any over time he works. He will need to work 20 hours overtime if this order is accepted.

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.