Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ennerdale has been asked to quote a price for a one-off contract. The company's management accountant has asked for your advice on the relevant costs

Ennerdale has been asked to quote a price for a one-off contract. The company's management accountant has asked for your advice on the relevant costs for the contract. The following information is available:

Materials

The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in inventory which had been purchased last month for a total cost of $19,600. Since then, the price per kilogram for material K has increased by 5%.

The contract also requires 200 kg of material L. There are 250 kg of material L in inventory which are not required for normal production. This material originally cost a total of $3,125. If not used on this contract, the inventory of material L would be sold for $11 per kg.

Labour

The contract requires 800 hours of skilled labour. Skilled labour is paid $9.50 per hour. There is a shortage of skilled labour, and all the available skilled labour is fully employed in the company in the manufacture of product P. The following information relates to product P:

$ per unit

$ per unit

Selling price

100

Less:

Skilled labor

38

Other variable costs

22

(60)

40

Finance costs

In order to complete the contract, a member of the finance team will be required to work eight hours overtime. The individual's annual salary is $25,000, and they work a 37.5-hour week. Overtime is paid at a rate of $15 per hour. Alternatively, an experienced contract accountant can be hired to administer the project in 75% of the time it would take the internal finance department member to complete. The contractor's rate is $25 per hour. It took the member of the finance team three hours to put together the information for this quote and no overtime was required.

Instructions:

  1. What is the relevant cost of material K which should be included in the contract?
  2. What is the relevant cost of material L which should be included in the contract?
  3. What is the relevant cost of skilled labour which should be included in the contract?
  4. What is the relevant cost of finance which should be included in the contract?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management And Cost Accounting

Authors: Alnoor Bhimani, Srikant Datar, Charles Horngren, Madhav Rajan

8th Edition

1292436026, 978-1292436029

More Books

Students also viewed these Accounting questions

Question

What attracts you to our graduate program specifically?

Answered: 1 week ago

Question

What are the potential limitations of group discussion?

Answered: 1 week ago