Question 3 Axis Co, manufactures and sells dinning tables sets (one table and 6 chairs) made from good quality materials. They are looking into a contemporary design that comes with digital storage features for music. This product will be launched in the near future in the competitive market in which they operate. This newly designed dinning tables set cum musical features will be called the Musical Dinning Table Set (MDTS). They have carried out a market survey and have arrived at a competitive market selling price of $2,600 per unit for a similar product. The company expects to make a profit mark-up of 30% The table-top will be made of marble material and will be bought from an external supplier for a price of $700.00 per table-top before a trade discount of 10% from the supplier. Each table will require 4 legs to complete and this will be bought from supplier XY Lid in bulk quantity of 5,000 legs for a total price of $400,000. XY Ltd will be giving a trade discount of 10% for all purchases made and a 10% settlement discount once payment is made within one month of credit term given Axis Co. will be taking up both the discounts. The company's skilled workforce will then do the assembly with all the materials needed. Once it is assembled, it will be ready for dispatch. Other costs to be incurred in the manufacture of a MDT are as follows: i. Six chairs will be made with satin material and the amount of material needed to complete one chair will be two meters. There will wastage of 5% in the event of cutting the material. The satin material will cost $38 per meter. One chair-frame will cost $90 per unit The musical device needed to be fit below the table will cost $208 per unit. One unit will be needed for each table set. iii. Other indirect materials - 57.50 per chair and $15.00 per table iv. Skilled labor will take 180 minutes to complete a set of dinning table and six chairs (MDTS) and their labor rate is $35.00 per hour. V. General workers will need 30 minutes of their time to assist in completing a set of the MDTS and their rate is $20.00 per hour. vi. Variable overheads - these will be incurred at a rate of $10.00 per total labor hours (both the skilled labor and general workers). vii. Fixed overhead costs are absorbed at a rate of S16 per total labor hours. Required: a) Based on the information given above ascertain the estimated cost per set of the Musical Dinning Table Set (MDTS). All workings must be shown and the final figure to be round-up to two decimal point (15 marks) b) Calculate the target cost and identify any cost gap that may exist. (4 marks) c) Discus THREE (3) ways to close the cost gap identified in part (b) above. (6 marks) (Total: 25 marks) Question 3 Axis Co, manufactures and sells dinning-tables sets (one table and 6 chairs) made from good quality materials. They are looking into a contemporary design that comes with digital storage features for music. This product will be launched in the near future in the competitive market in which they operate. This newly designed dinning-tables set cum musical features will be called the 'Musical Dinning Table Set' (MDTS). They have carried out a market survey and have arrived at a competitive market selling price of $2,600 per unit for a similar product. The company expects to make a profit mark-up of 30%. The table-top will be made of marble material and will be bought from an external supplier for a price of $700.00 per table-top before a trade discount of 10% from the supplier. Each table will require 4 legs to complete and this will be bought from supplier XY Ltd in bulk quantity of 5,000 legs for a total price of $400,000. XY Ltd will be giving a trade discount of 10% for all purchases made and a 10% settlement discount once payment is made within one month of credit term given. Axis Co. will be taking up both the discounts. The company's skilled workforce will then do the assembly with all the materials needed. Once it is assembled, it will be ready for dispatch. Other costs to be incurred in the manufacture of a MDT are as follows: i. Six chairs will be made with satin material and the amount of material needed to complete one chair will be two meters. There will wastage of 5% in the event of cutting the material. The satin material will cost $38 per meter. One chair-frame will cost $90 per unit. iv. ii. The musical device needed to be fit below the table will cost $208 per unit. One unit will be needed for each table set. Other indirect materials - $7.50 per chair and $15.00 per table. Skilled labor will take 180 minutes to complete a set of dinning-table and six chairs (MDTS) and their labor rate is $35.00 per hour. General workers will need 30 minutes of their time to assist in completing a set of the MDTS and their rate is $20.00 per hour. vi. Variable overheads - these will be incurred at a rate of $10.00 per total labor hours (both the skilled labor and general workers). vii. Fixed overhead costs are absorbed at a rate of $16 per total labor hours. Required: a) Based on the information given above ascertain the estimated cost per set of the Musical Dinning Table Set (MDTS). All workings must be shown and the final figure to be round-up to two decimal point (15 marks) b) Calculate the target cost and identify any cost gap that may exist. (4 marks) c) Discuss THREE (3) ways to close the cost gap identified in part (b) above. (6 marks) (Total: 25 marks)
