Whisper Ltd is an electronics company that has been approached by the managers of Vision+ for an order for 5000 units of a new sound bar system named SoundBar B at a price of 120 per unit.

Materials

Whisper Ltd currently has in stock the quantity of hard plastic needed to manufacture the soundbars. This plastic was bought at 205,000. If the project is not undertaken, Whisper Ltd would find no use for the plastic; so, the company would resell it at 100,000.

Other materials of SoundBar B currently available in stock and used frequently by Whisper Ltd, include:

1. Metal for the grille: the quantity required for this order is 250kg. the original cost was 30 per kg and the replacement cost is 35 per kg.

2. Grille cloth: the quantity required for this order is 150m². The original cost was 22 per m² and the replacement cost is 21 per m²

Labour

Labour is currently working at full capacity. If Whisper Ltd accept the order, it would need to hire hourly-paid staff for the entire 1500 hours of labour this order needs to be completed. The hourly rate for this extra staff will be 30.50 per hour.

Machinery

To fulfil the order Whisper Ltd decided to use a machine that has been sitting idle for the last 3 months. That machine has a book value of 630,000 and depreciates at a rate of 5250 per month; which is the time it would take to fulfil the order. The machine would be kept for future use if this order is not accepted.

Overheads

General overheads (to cover other costs not discussed above) would amount to 150,000.

Required:

1. Prepare a historic costing statement and an alternative costing statement for the Vision+s order based on relevant costs.

10. marks)

2. Comment on the rationale behind your decision to include or exclude each cost.

5. marks)

3. While referring to your calculation explain why it is important to consider the relevant costing principles in a decision-making context

(5 marks)

(Total 20 marks)