Question 2. 'Standardi' operates in Prishtina, and sells its products (mindera) all over the country. In the last month has received a request from a customer to provide a one-off order of mindecas, in excess of normal budgeted production. This order should be completed within 10 days. The following cost estimate has already been prepared: Direct materials: Note Fabric 200 m2 at 17 per m2 1 3,400 Wood 50 m at 8.20 per m2 2 410 Direct labour: Skilled 200 hours 16 per hour 3 3,200 Semi-skilled 300 hours 12 per hour 4 3,600 Factory overheads 500 hours at 3 per hour 5 1,500 2 Total production cost Administration overheads at 6 10% of total production cost Total cost 12,110 1,211 13,321 Notes 1. The fabric is regularly used by the 'Standardi'. There are currently 300 m2 in inventory, which cost 17 per m2. The current purchase price of the fabric is 17.50 per m2. 2. With regards to wood, this raw material is constantly used by 'Standardi' and usually costs 8.20 per m2. However, the company's current supplier's earliest delivery time for the wood is in three weeks' time. An alternative supplier could deliver immediately but they would charge 8.50 per m2. Standardi' already has 500 m2 in inventory but 480 m2 of this is needed to complete other existing orders in the next two weeks. The remaining 20 m2 is not going to be needed until four weeks' time. 3. The skilled labour force is employed under permanent contracts of employment under which they must be paid for 40 hours per week's labour, even if their time is idle due to absence of orders. Their rate of pay is 16 per hour, although any overtime is paid at time and a half. In the next two weeks, there is spare capacity of 150 labour hours. 4. There is no spare capacity for semi-skilled workers. They are currently paid 12 per hour or time and a half for overtime. However, a local agency can provide additional semi-skilled workers for 14 per hour. 5. The 3 absorption rate is 'Standardi"'s standard factory overhead absorption rate; 1.50 per hour reflects the cost of the factory supervisor's salary and the other 1.50 per hour reflects general factory costs. The supervisor is paid an annual salary and is also paid 15 per hour for any overtime he works. He will need to work 20 hours' overtime if this order is accepted. 6. This is an apportionment of the general administration overheads incurred by 'Standardi'. Required: a) Prepare the minimum cost (price) at which could be used as the basis for the quotation. [10 marks] b) Explain briefly your reasons for including or excluding each of the costs in your estimate. [7 marks] Question 2. 'Standardi' operates in Prishtina, and sells its products (mindera) all over the country. In the last month has received a request from a customer to provide a one-off order of mindecas, in excess of normal budgeted production. This order should be completed within 10 days. The following cost estimate has already been prepared: Direct materials: Note Fabric 200 m2 at 17 per m2 1 3,400 Wood 50 m at 8.20 per m2 2 410 Direct labour: Skilled 200 hours 16 per hour 3 3,200 Semi-skilled 300 hours 12 per hour 4 3,600 Factory overheads 500 hours at 3 per hour 5 1,500 2 Total production cost Administration overheads at 6 10% of total production cost Total cost 12,110 1,211 13,321 Notes 1. The fabric is regularly used by the 'Standardi'. There are currently 300 m2 in inventory, which cost 17 per m2. The current purchase price of the fabric is 17.50 per m2. 2. With regards to wood, this raw material is constantly used by 'Standardi' and usually costs 8.20 per m2. However, the company's current supplier's earliest delivery time for the wood is in three weeks' time. An alternative supplier could deliver immediately but they would charge 8.50 per m2. Standardi' already has 500 m2 in inventory but 480 m2 of this is needed to complete other existing orders in the next two weeks. The remaining 20 m2 is not going to be needed until four weeks' time. 3. The skilled labour force is employed under permanent contracts of employment under which they must be paid for 40 hours per week's labour, even if their time is idle due to absence of orders. Their rate of pay is 16 per hour, although any overtime is paid at time and a half. In the next two weeks, there is spare capacity of 150 labour hours. 4. There is no spare capacity for semi-skilled workers. They are currently paid 12 per hour or time and a half for overtime. However, a local agency can provide additional semi-skilled workers for 14 per hour. 5. The 3 absorption rate is 'Standardi"'s standard factory overhead absorption rate; 1.50 per hour reflects the cost of the factory supervisor's salary and the other 1.50 per hour reflects general factory costs. The supervisor is paid an annual salary and is also paid 15 per hour for any overtime he works. He will need to work 20 hours' overtime if this order is accepted. 6. This is an apportionment of the general administration overheads incurred by 'Standardi'. Required: a) Prepare the minimum cost (price) at which could be used as the basis for the quotation. [10 marks] b) Explain briefly your reasons for including or excluding each of the costs in your estimate. [7 marks]