Reference no: EM132529019

Ennerdale has been asked to quote a price for a one-off contract. The Company's management accountant has asked your advice on the relevant costs of the contract. The following information is available:

Materials

1. The contract requires 3,000 Kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in inventory which has been purchased last month for a total of $ 19,600. Since than the price per Kg for material K has increased by 5%.
2. The contract also requires 200 kg of material L. There are 250 kg of material L available in the inventory which is not in use for other production. The material originally costs $ 3,125 and if not used in this contract could be sold at $ 11 per kg.

Labour

1. The contract requires 800 hours of skilled labour. Skilled labour is paid $ 9.5 per hour. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company for the manufacturing of product P.

Following information relates to product P:

Sales Price $ 100 per unit

Labour cost $ 38 per unit

Other Variable cost $ 22 per unit

Finance Cost

1. In order to complete the contract, a member of the finance team will be required to work 8 hours overtime. The individual's annual salary is $ 25,000 and they work for 37.5 hour week. Overtime is paid at $ 15 per hour. Alternatively, an experienced contract accountant can be hired to administer the project in 75% of the time it would take by the internal finance department. The contrators rate is $ 25 per hour. It took the member of finance team three hours to put together for this quote and no over time was required for this.

Question 1. What is the relevant cost of Material K which should be included in the contract?

a) $ 29,400

b) $ 29,890

c) $ 30,870

d) $ 30,380

Question 2. What is the relevant cost of Material L which should be included in the contract?

a) $ 2,200

b) $ 2,500

c) $ 3,125

d) Nil

Question 3. What is the relevant cost of skilled labour which should be incorporated in the contract?

a) $ 8,000

b) $ 15,600

c) $ 7,600

d)$ 12,400

Question 4. What is the relevant cost of finance which should be included in the contract?

a) Nil

b) $ 120

c) $ 150

d) $ 158.46