Pearson Ads Enterprise specializes in printing advertising leaflets and brochures. The company is in the process of preparing its price list for its most popular brochures. In order to increase Pearson Ads Enterprise business opportunity, a technical report on the resource requirements for the brochures has been completed at a cost of RM1,500.00 and its details are summarised below:

• Production and Shipment

It is expected that the total time required to print and despatch the brochures will be one week.

There will be a delivery cost of RM550.00 to transport the brochures to the customer.

• Material Requirements

The production of the brochures requires two types of material:

• 20,000 sheets of special A4 printing paper will be required. This paper is used regularly by Pearson Ads Enterprise and it has 5,500 sheets in its inventory. The cost of this paper at the time of purchase was RM1.20 per sheet but the current market price is RM1.50 per sheet. The sheets held in inventory can be resale at RM1.00 per sheet.

• The production of this brochures will use a special ink that need to be purchased at a cost of RM10.50 per litre. 250 litres will be required for this brochures but the supplier has a minimum order size of 280 litres. Pearson Ads Enterprise does not foresee any other use for this ink, but will hold the surplus in inventory. The company inventory policy is to review slow moving items regularly. The cost of any inventory item that has not been used for more than 6 months is accounted for as an expense of the period in which that review occurs.

• Direct labour

Pearson Ads Enterprise has sufficient people employed. However, some of the printing will require overtime working due to the availability of a particular machine that has been used on other work as well.

The employees are normally paid RM8.00 per hour. The order of this brochures will require 150 hours of work and 50 of these hours will be in excess of the employees normal working week. A rate of RM10.00 per hour is paid for these overtime hours. Employees are paid using an hourly rate with a guaranteed minimum wage for their normal working week.

• Supervision

An existing supervisor will take responsibility for the brochures in addition to her existing duties. She is not currently fully employed and receives a salary of RM800.00 per week.

• Machinery

There are two types of machine that will be used for the production of this brochures:

• Machine A will print the brochures. It is expected to take 20 hours of machine time. The running cost of machine A is RM5.00 per hour. There is currently 30 hours of unused time on machine A per week that is being sold to other printers for RM15.00 per hour.

• Machine B will be used to cut and bind the brochures. This machine is being used to full capacity in the normal working week and thus, overtime is needed. The brochures will require 25 machine hours and these have a running cost of RM4.00 per hour.

• Overhead costs

Pearson Ads Enterprise uses a traditional absorption costing system to attribute fixed overhead costs to its work. The absorption rate is RM20.00 per direct labour hour.

• Profit mark-up

Pearson Ads Enterprise applies a 25% mark-up to its costs to determine its selling prices.

REQUIRED:

1. In order to assist the management of Pearson Ads Enterprise, prepare a schedule showing the relevant or irrelevant costs and revenues for the production of the brochures. State clearly your reason for including or excluding each cost or revenue that has been provided in the above scenario. Determine the total cost.

2. Write your answer using the following format:

Cost	RM	Classification of cost (relevant / irrelevant)	Reason