Required:

Prepare calculations showing the total relevant costs for making a decision about the contract in respect of the following cost elements: (i) Materials K and L; and (ii) Skilled labour

Doughnuts PLC has been asked to quote a price for a special contract. The Director of the company has approached you to advise the company on the relevant costs for that special contract. The company provides you with the following information: Materials The contract requires 3,000 kg of material Beta, which is a material used regularly by the company in other production. The company has 2,000 kg of material Beta currently in stock that had been purchased last month for a total cost of Rs. 19,600. Since then the price per kilogram for material Beta has increased by 5%. The contract also requires 200 kg of material Lama. There are 250 kg of material Lama in stock, which are not required for normal production. This material originally cost a total of Rs 3,125. If not used on this contract, the stock of material L would be sold for Rs11 per kg. Labour The contract requires 800 hours of skilled labour. Skilled labour is paid Rs 9-50 per hour. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product Penta. The following information relates to product Penta: Rs per unit Rs per unit Selling price 100 Less Skilled labour cost 38 Other variable costs (60) 40 22