Notes:

I. The cost of E$22,500 is for 3,750 square metres of covering fabric at standard cost of E$6 per square metres. There are 4,000 square metres of covering fabric in inventory which is no longer used in normal production that could be used for this order. If not used for this order this covering fabric can be sold for E$2.50 per square metres. This covering fabric cost E$5.50 per square metres to purchase.

II. The cost of E$32,500 is based on the standard cost of other raw materials. All of the other raw materials are in inventory and are currently used in normal production. Prices for these other raw materials have recently increased.

III. The direct labour cost of E$31,000 is the standard cost of labour. Direct employees are a paid for a fixed number of hours per week. There is spare capacity and therefore 75% of this order can be made during normal working hours. The other 25% will require overtime to be worked by the direct employees, for which they are paid a premium of 50% above normal wage rate.

IV. 4 The total production overheads of ES52,000 is the total of variable and fixed production overheads absorbed.

V. In addition to the above, the hotel chain has asked for the name of the hotel to be stitched onto each mattress which will require hiring an embroidery machine at a cost of E$2,000. In a addition, a Sales Manager has visited the company on a couple of occasions to discuss the order at a cost of E$500.

Question

c) Explain whether each of the costs on the attached schedule (Notes I to V) are relevant or irrelevant costs of deciding whether to accept the order. (32 marks) Required at least 5 paragraphs explaining each point