PRACTICE QUESTIONS - 2021/2022 Question 1 Ayigbe Toffee has been asked to tender for a contract larger than it would normally consider. The contractor would like to tender for the contract as it has spare capacity. In advance the cost accountant ! has prepared the following cost estimate: Notes GHS Direct Materials: 3,000 units of X @ GHS10 per unit (original cost) 1 30,000 100 units of Y (charged under FIFO basis): 50 @ GHS100 = 5,000 50 @ GHS125 = 6,250 2 11,250 Other Materials to be bought in 3 12,000 Direct Labour: Skilled Staff Unskilled Staff (Trainees) $ 16,800 1,250 Production overheads 6 8,050 Depreciation of plant 7 1,000 Subcontract work 8 20,000 Supervisory staff 9 6,150 Estimating and design department 10 2,500 Administration overhead 4.950 Total cost estimate 113.950 Note 1: A sufficient stock of material X is held in store. It is the residue of a quantity bought 10 years ago. If this stock is not used on this contract, it is unlikely to be used in the foreseeable future. However, a customer has offered to buy the stock for GHS20,000. Note 2: Material Y is in regular use within the company on a variety of jobs. The current replacement cost of this material is GHS130 per unit. Note 3: This is the estimated cost of the material required. Note 4: Skilled staff are paid and retained on a full-time basis. One extra worker will be taken on and will work on the contract for its 6 weeks duration at a weekly wage of GHS500. Note 5: No additional trainees will be taken on and they are also paid on a time basis rather than based on productivity Note 6: 80% are considered variable and the remainder are fixed. Note 7: One month's depreciation of the plant has been charged to the contract. This machine, if not used on this contract, can be hired out to other users at a rate of GHS500 per week Note 8: This is the estimated cost of the required work. Note : No additional supervisors will be employed, however, it is estimated that overtime of GHS1,000 will have to be paid. This is already included in the estimate of GHS6,150. Note 10: This was the cost of getting the original plans and estimates (as set out above) together. Note 11: This is a fixed cost, and is absorbed to contracts at the rate of 5% of other costs. 1 PRACTICE QUESTIONS - 2021/2022 Question 1 Ayigbe Toffee has been asked to tender for a contract larger than it would normally consider. The contractor would like to tender for the contract as it has spare capacity. In advance the cost accountant ! has prepared the following cost estimate: Notes GHS Direct Materials: 3,000 units of X @ GHS10 per unit (original cost) 1 30,000 100 units of Y (charged under FIFO basis): 50 @ GHS100 = 5,000 50 @ GHS125 = 6,250 2 11,250 Other Materials to be bought in 3 12,000 Direct Labour: Skilled Staff Unskilled Staff (Trainees) $ 16,800 1,250 Production overheads 6 8,050 Depreciation of plant 7 1,000 Subcontract work 8 20,000 Supervisory staff 9 6,150 Estimating and design department 10 2,500 Administration overhead 4.950 Total cost estimate 113.950 Note 1: A sufficient stock of material X is held in store. It is the residue of a quantity bought 10 years ago. If this stock is not used on this contract, it is unlikely to be used in the foreseeable future. However, a customer has offered to buy the stock for GHS20,000. Note 2: Material Y is in regular use within the company on a variety of jobs. The current replacement cost of this material is GHS130 per unit. Note 3: This is the estimated cost of the material required. Note 4: Skilled staff are paid and retained on a full-time basis. One extra worker will be taken on and will work on the contract for its 6 weeks duration at a weekly wage of GHS500. Note 5: No additional trainees will be taken on and they are also paid on a time basis rather than based on productivity Note 6: 80% are considered variable and the remainder are fixed. Note 7: One month's depreciation of the plant has been charged to the contract. This machine, if not used on this contract, can be hired out to other users at a rate of GHS500 per week Note 8: This is the estimated cost of the required work. Note : No additional supervisors will be employed, however, it is estimated that overtime of GHS1,000 will have to be paid. This is already included in the estimate of GHS6,150. Note 10: This was the cost of getting the original plans and estimates (as set out above) together. Note 11: This is a fixed cost, and is absorbed to contracts at the rate of 5% of other costs. 1