Quection $3$:

$3$pore Parta Ltd manufacturers components for motor velicle assemblera. Although new

motor vehicie sales are starting to improve, $3$pare Farts Ltd is still operating for only $3500$

drect labour hours per month, which reprezents $70$ per cent of normal capacity.

One of $3$pare Parts Ltd $\text{'}$s valued customers, Tlanlum Lod, has approached the marketing

drector with a proposal to buy a modfied verzion of one of Spare Farts Lods exiating

components, $x.$ The order $1$: for $1000$ units per month, for three months, at a price of

R$204$ per uni. Titanlum'a regular overseas suppler has been temporarily shut down,

following a fire in its factory.

$3$pare Farts Ltd standard direct manufacturing coat for component XXX$,$ without

modifcation, is as followa:

As expected, these direct coats are variable in nature.

Manufacturing overhead is absorted into production at the predetermined rate of $30\%$ of

atandard direct labour cost. This overhead rate conslats of the following:

Varlable manufacturing overhead varies with direct labour cost.

$3$pore Parta Ltora normal pricing polcy is to add a $40\%$ markup to total manufacturing costa$.$

The production manager has eatimated that to modify component XXXX to Tianlum's

specifcations, the following would be necessary:

Additional raw materialc per oomponent

Two units of an existing inventory fem R$3,$ which has a book vaiue of R$12$ per unR, would be

needed. There are $6500$ units of R$8$ on hand. Thla material la not regularly used and the

atores manager is planning either to dlapose I for R$4$ income per unR, If not used for the

Ttanlum order, or to use it as a subattute for material NM$.$ One unlt of R$8$ could replace

one unt of NM$,$ which $la$ used in the manufacture of another component. No Inventory of NM

Is on hand at present, and its purchase price it R$-14$ per unlt.

Additional direot labour per oomponent $(0\mathrm{.}50$ noura per unit$)$

The only addIonal fxed manufacturing overhead that would be incurred if Titanlum's order

was accepted would be an amount of R$22000$ per month to cover Increased zupervialon

and cierical costa$.$ If necesaary, direct labour could work overtime at the rate of $1\mathrm{.}5$ times the

standard rate of pay.

Required:

$3\mathrm{.}1$ Determine whether $3$pore Parts Ltd has the necessary capacity to manufacture

Thanlum's order, Including medication, in normal time

$3\mathrm{.}2$ Calculate the total reievant coat of accepting this order and what effect it will have on

the organlsation's pront over the three$-$month period. In your answer, briefly state why

you have included or excluded from your calculationa each cost and revenue item

presented in the queation.

$3\mathrm{.}3$ Determine the minimum price per unit that $3$pare Farta Ltd could charge Titanlum

wrout changing its exiating proft.

$3\mathrm{.}4$ Dlacuss what other factors $3$pare Parts Lod should conalder when deciding whether to

accept the order at the price offered.