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Question 2 Mylady Limited has received a request to produce a component called Zeta. The costing department has prepared the following cost estimates relating to the component. Note GHS Direct materials: Steel Brass fittings 10m @ GHS5.00 per m 1 1 2 50 20 Direct labour: : Skilled Semi-skilled 25 hours @ GHS8.00 per hour 10 hours @ GHS5.00 per hour 3 4 200 50 Overhead 35 hours @ GHS 10.00 per hour 5 350 Estimating time 6 Admin overhead @ 20% of production cost 7 100 770 154 924 231 Profit @ 25% of total cost 8 Selling price 1.155 Notes 1 The steel is regularly used, and has a current stock value of GHS5.00 per square metre. There are currently 100 square metres in stock. The steel is readily available at a price of GHS5.50 per square metre. 2 The brass fittings would have to be bought specifically for this job: a supplier has quoted the price of GHS20 for the fittings required. 3 The skilled labour is currently employed by the company and paid at a rate of GHS8.00 per hour. If this job were undertaken it would be necessary either to work 25 hours' overtime, 2 which would be paid at time plus one half, OR in order to carry out the work in normal time, reduce production of another product that earns a contribution of GHS13.00 per hour. 4 The semi-skilled labour currently has sufficient paid idle time to be able to complete this work. 5 The overhead absorption rate includes power costs which are directly related to machine usage. If this job were undertaken, it is estimated that the machine time required would be ten hours. The machines incur power costs of GHS0.75 per hour. There are no other overhead costs that can be specifically identified with this job. 6 The cost of the estimating time is that attributed to the four hours taken by the engineers to analyse the drawings and determine the cost estimate given above. 7 It is company policy to add 20% to the production cost as an allowance for administration costs associated with the jobs accepted. 8 This is the standard profit added by your company as part of its pricing policy. Required Prepare on a relevant cost basis, the lowest cost estimate that could be used as the basis for a quotation. Explain briefly your reasons for using EACH of the values in your estimate