Purchase Solution

Relevant costs

Not what you're looking for?

Ask Custom Question

Please see attachment.

Question 4
Blastoff Inc. manufactures sophisticated products used in the agriculture industry. The company has been approached by a customer who wants to buy 400 identical products at $200 per unit over the next 12 months.
The data in respect of the production of each individual unit is as follows:
1. Direct material requirements
3kg -direct material X1 - see note a)
2kg- direct material X2 -see note b)
10 litres A687 -see note c)
Notes:
a) Direct material X1 is used continually by Blastoff for manufacturing of a number of different products. There are currently 1,00kg in stock at a carrying value of $4.70 per kg. The replacement value of this direct material is $5.00 per kg.
b) There are 1,200 kg of X2 in stock. The original cost of this direct material was $4.30 per kg. As this direct material has not been used in the past two years, it has been written down to $1.50 per kg, the currents crap value. The only other alternative use for X2 is to use it as a substitute for direct material P4 (currently used to manufacture other products). This, however, requires X2 to be further processed at a cost of $1.60 per kg. The current cost of direct material P4 is $3.60 per kg.
c) Direct material A687 currently costs $5 per litre

2. Labour Requirements
Each unit requires 2 hours of skilled labour and 2.5 hours of semi-skilled labour. There is a permanently appointed skilled labourer, who is paid $50 per hour, who has enough spare time available to supply the skilled labour requirements for the contract. An additional semi-skilled labourer will have to be hired to carry out the contract. Skilled labourers can be hired at $45 per hour and semi-skilled labour at $25 per hour.

3. Overheads
Blastoff recovers overheads at a machine hour rate of $25 per machine hour. $7 of this is for variable costs that vary directly with the production of the components and $18 is for fixed overheads. If the contract with the client is accepted, the fixed overhead costs will increase by $3,200 for the period of the contract. There is currently idle capacity available and the production of each unit will require 4 machine hours.

Required: Prepare a calculation that shows whether or not Blastoff should accept the new order.

Attachments
Purchase this Solution
Solution Summary

The solution explains the use relevant costs in making the accept/reject decision for a special order

Purchase this Solution
Free BrainMass Quizzes
IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • Variable Costs and Relevant Costs

    453185 Variable Costs and Relevant Are variable cost always relevant costs? Example of a company of five different relevant costs that they might have in their orgainzation.

  • Relevant costs: reduced selling price

    496629 Relevant Costs: Reduced Selling Price What relevant costs might you consider in deciding whether to accept an order at a reduced selling price? What costs would you not consider when making your decision? Why are these costs not relevant?

  • Relevant cost: job costing and process costing.

    Examples are given of relevant costs in job costing, process costing, direct costs and indirect costs.

  • Ortiz Manufacturing: Relevant Costs

    Your tutorial is 192 words and explains the concept of relevant costs and gives 10 examples of relevant costs and two examples of costs that are NOT relevant.

  • Relationship Between Relevant Costs & Incremental Costs

    591949 Relationship Between Relevant Costs & Incremental Costs Please explain the concepts of relevant costs and incremental costs and how do they relate? Provide examples.

  • Relevant and Differential Costs

    Which costs are relevant and which are not relevant in the choice between these two alternatives? Because the supplies costs and power costs are the same under either alternative, neither of these costs is relevant to the decision.

  • Make or Buy / Fixed Costs

    Fixed costs are always relevant to the decision. D. Fixed costs are relevant when they exceed variable costs. B. Fixed costs are relevant when they differ among alternatives.

  • Relevant costs vs. incremental costs: example

    593909 Relevant costs vs. incremental costs: example Discuss the concepts of relevant costs and incremental costs. How do they relate? Provide examples. Relevant costs are those that change with the decision.

  • Relevant and non-relevant costs for Apple Inc.

    (Wikipedia) Two relevant and two non-relevant costs Relevant costs will be: 1) Human resource cost deployed in India 2) Depreciation on Fixed Assets 3) Material costs and other overheads to be incurred for the business expansion in India Non -

  • Relevant Costs for Decision Making

    Wikipedia This explains the Relevant costs

View More Related Solutions