QUESTION FOUR A standard unit of Witola Manufacturing Company contains the following marginal costs: Fixed factory overhead is budgeted at K280,000 for a normal sales volume of 400,000 units. Factor capacity is 500,000 units. Distribution and administrative expenses are budged at K180,000. Capital employed is considered to consist of 50 per cent of net sales for current assets and K450,00 for fixed assets. Additional analysis indicates: (a) Direct material prices will increase K 0.40 per unit. (b) An unfavourable direct labour variance of approximately 6 per cent has been experienced for the past two years. (c) Customers" discounts average toabout 2 per cent of the gross sales price. REQUIRED: Determine a sales price which will yield 16 per cent return on capital employed. QUESTION FIVE An electronics company produces many types of expensive components. A recent contract for a batch of components (KRS) was priced by the company's accountant. Although the company is short of work, the accountant has advised the managing director that the contract should not be orcanted because it will result in a loss, as follows: Ihe following additional information is available: K10,000 of material, for which there is no other use, is already in stock. If the contract does not go ahead, it will be disposed of at a cost of K1,000. A contract has been agreed for K5,000 worth of stock. The balance of the stock will also need to be purchased. Labour costs include an allocation of supervisor's costs of K20,000. If the contract is not accepted, some of the workforce will be made redundant at a cost of K10,000. It has just been realized that the machinery for the contract needs some modification at a cost of K3,000. If the machinery is not used in the contract it will be sold for K5,000. The contract will take 3,600 direct labour hours. REQUIRED: (a) Should the contract be accepted or rejected? Justify your inclusion or exclusion of costs and state what other factors should be taken into account. (b) Before a final decision is made, the company receives a new order for its productions. The following information is available: To make one unit takes five labour hours. The company does not have the labour hours available to complete contract KRS and accept the new order. Should contract KRS or the new order be accepted? Explain your reasons and give supporting figures. C. Decision making is not concerned solely with costs and revenues.' Give some examples of nonfinancial considerations that may be taken into account when making various types of decision. QUESTION FOUR A standard unit of Witola Manufacturing Company contains the following marginal costs: Fixed factory overhead is budgeted at K280,000 for a normal sales volume of 400,000 units. Factor capacity is 500,000 units. Distribution and administrative expenses are budged at K180,000. Capital employed is considered to consist of 50 per cent of net sales for current assets and K450,00 for fixed assets. Additional analysis indicates: (a) Direct material prices will increase K 0.40 per unit. (b) An unfavourable direct labour variance of approximately 6 per cent has been experienced for the past two years. (c) Customers" discounts average toabout 2 per cent of the gross sales price. REQUIRED: Determine a sales price which will yield 16 per cent return on capital employed. QUESTION FIVE An electronics company produces many types of expensive components. A recent contract for a batch of components (KRS) was priced by the company's accountant. Although the company is short of work, the accountant has advised the managing director that the contract should not be orcanted because it will result in a loss, as follows: Ihe following additional information is available: K10,000 of material, for which there is no other use, is already in stock. If the contract does not go ahead, it will be disposed of at a cost of K1,000. A contract has been agreed for K5,000 worth of stock. The balance of the stock will also need to be purchased. Labour costs include an allocation of supervisor's costs of K20,000. If the contract is not accepted, some of the workforce will be made redundant at a cost of K10,000. It has just been realized that the machinery for the contract needs some modification at a cost of K3,000. If the machinery is not used in the contract it will be sold for K5,000. The contract will take 3,600 direct labour hours. REQUIRED: (a) Should the contract be accepted or rejected? Justify your inclusion or exclusion of costs and state what other factors should be taken into account. (b) Before a final decision is made, the company receives a new order for its productions. The following information is available: To make one unit takes five labour hours. The company does not have the labour hours available to complete contract KRS and accept the new order. Should contract KRS or the new order be accepted? Explain your reasons and give supporting figures. C. Decision making is not concerned solely with costs and revenues.' Give some examples of nonfinancial considerations that may be taken into account when making various types of decision
