Ntiwa Limited is a company that manufactures machine parts. Serwaa Limited has offered them a year contract to produce a special type of part for one of its machines. Ntiwa Limited has an existing machine that was purchased about 10 years ago and it can only be used for the contract offered by SerwaaLimited. The machine has so far been depreciated by GHC10, 000. Meanwhile, its original cost was GHC24, 000. The value of the machine in the books of Ntiwa is GHC14, 000. However, it could be sold now for GHC7, 000 or in a years time for GHC1, 000.

If Ntiwa Limited accepts the contract, it would need four (4) different types of materials which are listed below:

A B C D

In stock (units) 1,400 400 2,800 2,000

Required for contract (units) 500 1,300 400 1,400

Purchase price of stock (GHC) 1.80 0.75 0.50 1.80

Current replacement cost (GHC) 1.50 2.80 0.80 2.00

A and D are in regular use within the company. B could be sold for GHC2.10 if not used for the contract and there are no other uses for C, which has been deemed to be obsolete. It can however be sold at a price of GHC0.6 per unit.

Required

a. Compute the relevant costs in respect of the contract offered by Serwaa Limited.

6 marks

b. Explain the bases for your answers in a above. 19 marks

this is a cost accounting question