QUESTION 4 - 20 Marks (24 Minutes) THIS QUESTION CONSISTS OF TWO (2) INDEPENDENT PARTS. PART A - 10 Marks (12 Minutes) Khathaza (Pty) Ltd has tendered for a once-off contract to repair a portion of the railway line between Johannesburg and Soweto. The following cost estimates were used for the purpose of arriving at the tender price: R Direct materials - steel 700 000 Direct materials - wiring and ancillaries 300 000 Direct labour-engineering (3 000 hours @ R150 per hour) 450 000 Direct labour - unskilled (10 000 hours @ R50 per hour) 500 000 Variable overheads 200 000 Absorbed fixed overheads 200 000 Total estimated cost R2 350 000 Khathaza (Pty) Ltd tendered price at R2 820 000 by adding a mark-up of 20% on the above total estimated costs. The company has been informed that their tender for the railway project was unsuccessful You have recently been appointed as a Management Accountant of the company. The Managing Director has asked for your opinion as to whether the cost estimates on which the tender price was based were correct. You have reviewed the working files and have determined that: QUESTION 4 - PART A (continued) 1. Sufficient steel was already in stock at the original cost of R500 000. Steel is regularly used by the company and the steel for the railway project can currently be replaced at a cost of R260 000 due to low commodity prices in the market. 2. The wiring and ancillaries were already in stock for the previous job that was cancelled. The wiring and ancillaries have no other use and was to be scrapped at R20 000. 3. Engineering hours were in short supply and currently earns a contribution of R10 per hour for the company 4. Due to the recent cancellation of an order, the company expected to have 6 000 idle unskilled hours available to work on the job. Any additional unskilled labour required is employed on a casual basis. 5. "Absorbed fixed overheads" represent an allocation of the company's general fixed overheads. 6. The proposed tender would have incurred specific fixed costs of R30 000. Marks REQUIRED (a) Prepare a revised tender price calculation if the relevant costing principles were applied and the company adds 20% mark-up to the total estimated cost. You should also provide the reasons for the inclusion or exclusion of each cost item. TOTAL PARTA (10) 10