Reference no: EM132628930

A. The manager of a small printing business receives an enquiry from a customer about printing 30,000 leaflets. The customer is willing to pay £25,000. Currently there is no spare capacity in terms of labour and the variable labour and overhead costs of producing these leaflets would be £80 per 1,000 leaflets.

The leaflets would be printed on a special type of paper which costs £500 per 1,000 leaflets. However, there are already sufficient quantities of the paper in store for 20,000 of the leaflets. This special paper was purchased three months ago for a customer who then cancelled his order. The material has a disposal value of £1,500 but it could also be used to produce 20,000 units of leaflet C. The cost of normal paper for leaflet C is £300 per 1,000 leaflets.

Required:

Question 1: Calculate the relevant costs of making the leaflets for this special order.

B. Explain the difference between the following terms, providing examples where they will assist your explanation:

1. Direct cost and Indirect cost

2. Cost allocation and cost apportionment

C. An Investment centre has reported a profit of £40,000. It has the following assets and liabilities:

£                                                                         £

Non- current assets (at Net Book value) 200,000

Inventory                                           30,000

Trade receivables                              45,000

                                                      75,000

Trade payables 8,000 67,000

NET ASSETS 267,000

Required:

Question 1: Calculate the ROI for this centre.

Question 2: Will the answer be same if it is given that the centre manager has no responsibility for debt collection and why?

Question 3: Recalculate (if needed) ROI using additional information from 2 above.