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Spare Parts Ltd manufacturers components for motor vehicle assemblers. Although new motor vehicle sales are starting to improve, Spare Parts Ltd is still operating for
Spare Parts Ltd manufacturers components for motor vehicle assemblers. Although new motor vehicle sales are starting to improve, Spare Parts Ltd is still operating for only direct labour hours per month, which represents per cent of normal capacity. One of Spare Parts Ltd s valued customers, Titanium Ltd has approached the marketing director with a proposal to buy a modified version of one of Spare Parts Ltds existing components, XXX The order is for units per month, for three months, at a price of R per unit. Titaniums regular overseas supplier has been temporarily shut down, following a fire in its factory. Spare Parts Ltd standard direct manufacturing cost for component XXX without modification, is as follows: R Direct materials Direct labour hour Standard direct cost As expected, these direct costs are variable in nature. Manufacturing overhead is absorbed into production at the predetermined rate of of standard direct labour cost. This overhead rate consists of the following: standard direct labour cost Variable manufacturing overhead Fixed manufacturing overhead Predetermined manufacturing overhead rate Variable manufacturing overhead varies with direct labour cost. Spare Parts Ltds normal pricing policy is to add a markup to total manufacturing costs. The production manager has estimated that to modify component XXX to Titaniums specifications, the following would be necessary: Additional raw materials per component Two units of an existing inventory item RS which has a book value of R per unit, would be needed. There are units of RS on hand. This material is not regularly used and the stores manager is planning either to dispose it for R income per unit, if not used for the Titanium order, or to use it as a substitute for material NM One unit of RS could replace one unit of NM which is used in the manufacture of another component. No inventory of NM is on hand at present, and its purchase price is R per unit. Additional direct labour per component hours per unit The only additional fixed manufacturing overhead that would be incurred if Titaniums order was accepted would be an amount of R per month to cover increased supervision and clerical costs. If necessary, direct labour could work overtime at the rate of times the standard rate of pay. Required: Determine whether Spare Parts Ltd has the necessary capacity to manufacture Titaniums order, including medication, in normal time. Calculate the total relevant cost of accepting this order and what effect it will have on the organisations profit over the threemonth period. In your answer, briefly state why you have included or excluded from your calculations each cost and revenue item presented in the question. Determine the minimum price per unit that Spare Parts Ltd could charge Titanium without changing its existing profit. Discuss what other factors Spare Parts Ltd should consider when deciding whether to accept the order at the price offered. Question : Share Std Deviation Avg Return D:E Ratio A B C Required: Mrs Apple is a risk taker. Which share is she most likely to invest in and why? Mrs Smith is riskaverse. Which share is she most likely to invest in and why? Mr Smith wants to make the best possible investment, regardless of risk. Advise him as to which share he should invest in Provide any supporting calculations and comments which may be necessary. Define financial risk, and determine which share represents the company with the highest financial risk.
Spare Parts Ltd manufacturers components for motor vehicle assemblers. Although new motor vehicle sales are starting to improve, Spare Parts Ltd is still operating for only direct labour hours per month, which represents per cent of normal capacity.
One of Spare Parts Ltd s valued customers, Titanium Ltd has approached the marketing director with a proposal to buy a modified version of one of Spare Parts Ltds existing components, XXX The order is for units per month, for three months, at a price of
R per unit. Titaniums regular overseas supplier has been temporarily shut down, following a fire in its factory.
Spare Parts Ltd standard direct manufacturing cost for component XXX without modification, is as follows:
R
Direct materials
Direct labour hour
Standard direct cost
As expected, these direct costs are variable in nature.
Manufacturing overhead is absorbed into production at the predetermined rate of of standard direct labour cost. This overhead rate consists of the following:
standard direct labour cost
Variable manufacturing overhead
Fixed manufacturing overhead
Predetermined manufacturing overhead rate
Variable manufacturing overhead varies with direct labour cost.
Spare Parts Ltds normal pricing policy is to add a markup to total manufacturing costs.
The production manager has estimated that to modify component XXX to Titaniums specifications, the following would be necessary:
Additional raw materials per component
Two units of an existing inventory item RS which has a book value of R per unit, would be needed. There are units of RS on hand. This material is not regularly used and the stores manager is planning either to dispose it for R income per unit, if not used for the Titanium order, or to use it as a substitute for material NM One unit of RS could replace one unit of NM which is used in the manufacture of another component. No inventory of NM is on hand at present, and its purchase price is R per unit.
Additional direct labour per component hours per unit
The only additional fixed manufacturing overhead that would be incurred if Titaniums order was accepted would be an amount of R per month to cover increased supervision and clerical costs. If necessary, direct labour could work overtime at the rate of times the standard rate of pay.
Required:
Determine whether Spare Parts Ltd has the necessary capacity to manufacture
Titaniums order, including medication, in normal time.
Calculate the total relevant cost of accepting this order and what effect it will have on the organisations profit over the threemonth period. In your answer, briefly state why you have included or excluded from your calculations each cost and revenue item
presented in the question.
Determine the minimum price per unit that Spare Parts Ltd could charge Titanium without changing its existing profit.
Discuss what other factors Spare Parts Ltd should consider when deciding whether to accept the order at the price offered. Question :
Share Std Deviation Avg Return D:E Ratio
A
B
C
Required:
Mrs Apple is a risk taker. Which share is she most likely to invest in and why?
Mrs Smith is riskaverse. Which share is she most likely to invest in and why?
Mr Smith wants to make the best possible investment, regardless of risk. Advise him as to which share he should invest in Provide any supporting calculations and comments
which may be necessary.
Define financial risk, and determine which share represents the company with the highest financial risk.
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