Upload
liti-luke
View
215
Download
0
Embed Size (px)
Citation preview
7/28/2019 MFRD Assgn2 Task 1bb
1/2
Task 1b. Costing and Pricing Decisions:
Kim Cuong Ltd has recently been asked to tender for a contract to install centralheating systems in the textile industry. The following details relate to the
proposed contract:
a. Materials:(i) $22,500 of materials would need to be purchased (mua) ; fixed(ii) $14,000 of materials would need to be transferred from anothercontract (these materials would need to be replaced);(iii) Some obsolete (qu hn) stock would be used. The stock had originally cost$20,000. Its current disposable (c th chuyn nhng) value is $5,000.
b. The contract would involve labour costs of $100,000, of which $55,000 (fixed)would be incurred regardless of whether the contract was undertaken. (fixed cost)
c. The production manager will have to work several evenings a weekduring the progress of the contract. He is paid a salary of $45,000 peryear(fixed) , and on successful completion of the contract he would receive a
bonus of $7,250.
d. Additional administrative expenses incurred in undertakings thecontract are estimated to be $4,325.
e. The company absorbs its fixed overheads at a rate of 12% permachine hour. The contract will require 4,000 machine hours.
Tasks: Calculate unit costs and make pricing decisions using relevant informationgiven in the scenario (3 b)Hints:
.. Calculate the minimum contract price that would be acceptable toKim Cuong Ltd.
7/28/2019 MFRD Assgn2 Task 1bb
2/2
Solutiona. Materials:
i. $22,500 of materials would need to be purchased. This is not yet owned. It wouldhave to be bought. This is a fixed cost so it is irrelevant to a decision.
ii. These materials will be transferred from another contract and they need to be
replaced. Relevant cost is therefore at the replacement cost of $14,000.iii. For some obsolete stock, they had the cost that is fixed at $20,000. And in the
future, they can be sold at $5,000. The relevant cost here is an opportunity cost ofsales revenue forgone at $5,000.
b. For labour cost, $55,000 in the total $100,000 is fixed even though the contractwas undertaken. The relevant cost is therefore ($100,000 - $55,000) $45,000.c. The production manager is paid a salary of $45,000 per year (fixed cost). A bonusof $7,250 is relevant cost in the future of the contract is successful.d. In the future, the relevant cost of administration expenses is $4,325.e. The company absorbs its fixed overheads at a rate of 12% per machine hour. Thevariable cost is therefore 4,000 machine hours of 88% per machine hour.
Summary of relevant cost
$Materials ($14,000 + $5,000) 19000
Labour cost($100,000 -$55,000) 45000
Cost for the production manager 7250Cost of administration expenses 4325
75575