QUESTION ONE The managing director of Parser Ltd, a small business, is considering undertaking a once-off contract and has asked her inexperienced accountant to advise on what costs are likely to be incurred so that she can price at a profit. The following schedule has been prepared: Costs for special order Direct wages Supervisor costs Notes 1 R 28 500 11.500 General overheads Machine depreciation Machine overheads Materials 23456 4 000 2 300 18 000 34 000 98 300 [25] 2 Notes 1. Direct wages comprise the wages of two employees, particularly skilled in the labour process for this job, who could be transferred from another department to undertake work on the special order. They are fully occupied in their usual department and sub-contracting staff would have to be brought in to undertake the work left behind. Subcontracting costs would be R32 000 for the period of the work. Different subcontractors who are skilled in the special order techniques are available to work on the special order and their costs would amount to R31 300. 2. A supervisor would have to work on the special order. The cost of R11 500 is comprised of R8 000 normal payments plus R3 500 additional bonus for working on the special order. Normal payments refer to the fixed salary of the supervisor. In addition, the supervisor would lose incentive payments in his normal work to R2 500. It is not anticipated that any replacement costs relating to the supervisor's work on other jobs would arise. 3. General overheads comprise an apportionment of R3 000 plus an estimate of R1 000 incremental overheads. 4. Machine depreciation represents the normal period cost based on the duration of the contract. It is anticipated that R500 will be incurred in additional machine maintenance costs. 5. Machine overheads (for running costs such as electricity) are charged at R3 per hour. It is estimated that 6 000 hours will be needed for the special order. The machine has 4 000 hours 1