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Direct labour
Fixed overheads
Opportunity cost
Workings
Budgeted sales orders
Domestic Commercial
June: Actual (given) 52 38
Variances -10% 5%
June: Budgeted 57.778 36.190
July sales (=June Budgeted) 57 36
Average metres of roofing sheets per order (output) 200 450
Normal loss 3% 4%
Average metres of roofing sheets per order (input) 206.19 468.75
Direct labour
Hours needed for special order 7,500
Less hours remaining from normal production (1,311)
Extra hours needed 6,189
b) Identify any additional factors that FP should consider when deciding whether or not to accept the special order.
-Are we able to meet the 31 July 2016 completion date as requested by the client?
-Are we going to perform a quality job that can guarantee a repeat business, given the following factors?
-The tight deadline of 31 July 2016.
-The fact that Mr White is only available for 4 hours per day, this may result in delays in finishing the job.
-The inefficiency of the third machine may also result in time delays and possible poor quality roofs.
-What is the probability that we will be successful in negotiating for a 5% discount in acquiring paint from our supplier?
-Given the current economic downturn in Zimbabwe, will our supplier of paint be able to continue in operation and prov
-Is Mbuya Nehanda Housing Cooperative able to pay us the money for this job, given the tight liquidity situation prevail
-What is the possible effect on our existing clients whom we have not been able to satisfy as a result of accepting this s
-Are they going to still give us business or they are likely to give business to our competitors?
-Is sacrificing our existing clients worth the acceptance of the new special order? Are we going to receive repeat busine
-How will our existing clients in the domestic market react given that they hear of the amount we have charged to this C
-If we get more business from this or other housing cooperatives, how are we going to manage our constraints - roofing
-Should we hire more staff or hire part time workers as and when needed?
-The fact that we have done a job for housing cooperative can be a strong marketing tool for MRS
-Does the new staff to be hired need training before executing the job?
-Any other valid point
Available
Maximum
c) Calculate the allocated overhead cost per unit using Activity Based Costing
d) What potential challenge is MRS likely to face in cost allocation using ABC?
-Inaccurate identification of a cost driver per activity area
-Potential cash constraints if MRS wants to adopt a more accurate ABC system.
-Inaccurate information to use as bases of allocation may be gathered for example, number of orders, number of set
-Difficulties in assigning resources to activities.
-Any valid point
Mbuya Nehanda Housing Cooperative [25 marks]
5,724.74 2
82,001.79
35.5
25
2
27,000 25,200
(25,689) (19,376) 4
1,311 5,824
7,500 7,732 4
No No 2
Current labour Mr. White can
can work be hired to
overtime or new operate third
labour can be machine for an
sourced. additional 2000
hours
0.5
1
1
0.5
1
1
Alternative
2.50
(0.25) 1
2.25 1
2
2
2
2
1
1
1
he special order.
1
wing factors? 1
1
finishing the job. 1
ality roofs. 1
ing paint from our supplier? 1
ntinue in operation and provide us with paint? 1
ght liquidity situation prevailing in Zimbabwe? 1
s a result of accepting this special order? 1
1
ing to receive repeat business from Mbuya Nehanda Ho 1
unt we have charged to this Co-operative? 1
age our constraints - roofing sheets and labour? 1
1
1
1
1
17
10
Total
$
1
410,000.00 1
1
1
350,000.00 1
1
1
440,000.00 1
1
1
300,000.00 1
1
1
150,000.00 1
1
1,650,000.00
15
10
1
1
of orders, number of set 1
1
1