QUESTION 1:

X company intend to manufacture 100,000 units of product M. Each unit of product M requires one unit of the three types of raw materials namely A,B and C.

Material A is in regular use of the company and the stocks are replaced as and when exhausted.

Material B is not in regular use of the company but as a result of overbuying in an earlier contract, the company at present holds a stock of 60,000 units.

Material C is used only in product M and hence the company has to purchase the same as per the requirement of production of the product. The data relating to the three items of raw materials are as under:

Raw materials	Current stock(units)	Cost per unit of Raw material
		Original cost(RO)	Current Replacement (RO)	Current resale cost(RO)
A	100,000	2.000	2.500	1.750
B	60,000	3.500	3.000	1.000
C	nil	nil	6.000	5.000

You are required to calculate the cost of materials used in manufacture of 100,000 units of product M.

QUESTION 2:

A firm has received an order from customer X to be executed for RO1,800 ( all inclusive). The order requires the following materials, labour etc.

Materials	Requirements	In stock	Book value	Replacement cost per kg	Realizable value per kg
A	100kg	50kg	RO 250	RO 7	RO 3
B	300kg	140kg	RO 280	RO 3	RO 1

Labour:

Department I : 10 hrs @ RO15

Department II : 8 hrs @ RO12

Variable Overhead : RO 150

Material A is regularly used by the firm and if used on this order has to be replaced for the use of other orders.

Material B has no use and is the result of excessive purchase made for an order executed two years ago.

Labour in department I is available for this order but labour in department II is fully engaged on another order which is earning a contribution of RO 20 per hour and if the order from X is to be executed, labour in department II has to be diverted from current operations. State whether the order received from customer X has to accepted.

QUESTION 3:

A machine shop in a factory is working to its full capacity and earning a contribution of RO 50 per hour. The management receives a high priority order which it wants to execute immediately. Material will be supplied by the customer and the order will take a minimum of 10 hours. Wages payable will be RO15 per hour and variable overheads will be 150% of labour cost. If the customer is prepared to pay RO 800 for the order, should the order be accepted.

QUESTION 4:

A company purchased a machine for RO 10,000. It has a book value of RO3,000 but has become obsolete and cannot be sold in its present condition. However, if the firm is willing to modify the machine at a cost of RO2,000, it can be sold for RO 6,000. Advise.