Question
Namibia Public Address Systems (NPAS) is considering producing a newly technologically advanced public address system. The prevailing price of similar system in the market is
Namibia Public Address Systems ("NPAS") is considering producing a newly technologically advanced public address system. The prevailing price of similar system in the market is N$4 400. NPAS knows that they will not be able to change this price even if their product is different from the current one I n the market. NPAS's policy is to charge a profit mark up of 25%. Cost information for the new public address system (PAS) is as follows:? Circuit board - The current price of buying it in the market is N$410 each. The supplier sells them in batches of 4 000 boards. The supplier charges an additional delivery cost of N$240 000 per batch.? Wiring - The wiring required costs N$50 per meter. 25cm of wire is needed for each completed PAS. A normal loss of 2% is anticipated on the wiring. ? Indirect material - Indirect material will be N$810 per PAS.? Assembly labour - The current demand estimation indicates that 100 units of the PAS will be manufactured in total. The first unit requires 3 hours to produce. The cost of labour to be used for costing the PAS should be the labour cost of producing the 50th unit. The workers are paid N$126 per hour and it is anticipated that the workers will learn at a rate of 85%. ? Manufacturing Overheads - Manufacturing overheads have been observed to behave as follows:Total production overhead Total assembly labour hours N$ HoursMonth 1 620 000 19 000Month 2 700 000 23 000Fixed production overheads are allocated on the basis of assembly labour hours. The annual assembly labour hours are budgeted to be 240 000 assembly labour hours.Required:MarkSub-Total Total1.1 Calculate the anticipated cost of producing one PSA. 1.2 Determine the target costing gap.
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