Inscape Printers ( Pty ) Ltd are engaged in the printing of books, posters and all related
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Question:
Inscape Printers Pty Ltd are engaged in the printing of books, posters and all related
printables.
With the national elections approaching fast, a tender has been presented to Inscape
Printers Pty Ltd for the printing of posters encouraging individuals to vote in the elections.
You
The work would be carried out in addition to the normal work of the company. Because of
existing commitments, some weekend work would be required to complete the printing of the
posters.
You are the management accountant of Inscape Printers Pty Ltd and you have requested
for the trainee accountant to produce the following cost estimate based upon the resources
as specified by the production manager:
Note R
Direct Materials
Cardboard book value
Inks purchase price
Direct Labour
Skilled hours at R per hour
Unskilled hours at R an hours
Variable Manufacturing Overheads
hours at R
Printer
Depreciation hours at R per hr
Fixed Production Costs
hours at R per hours
Estimating department costs
Estimated Cost
You are aware that considerable publicity could be obtained for the company if you are able
to win this order and the price quoted must be very competitive.
The following information relates to the cost estimate above:
The cardboard to be used is currently in stock at a value of R It is a specific colour
which has not been used for some time. The replacement price of the cardboard is R
while its scrap value is of its replacement cost. The production manager does not
foresee any alternative use for the cardboard if it is not used for the prospective tender.
The inks required are not held in stock. They would have to be purchased in bulk at a
cost of R of the ink purchased would be used in printing the posters. No other
use is foreseen for the remainder.
Skilled labour is underemployed and is only paid for hours worked. However,
If this printing job is accepted, not only will they become fully employed but
of the time required would be worked at weekends, for which a Premium of above
the normal hourly rate is paid. The norm al hourly rate is R per hour.
Unskilled labour is presently underutilized and hours per week is recorded as idle
time for which the labourers are however paid. If the printing work is carried out on the
weekend, unskilled hours will be worked during this time. The employees concerned
would be given two hours time off in lieu of each hour worked on the weekend. The time off
will reduce idle time currently being experienced.
Variable overheads represent the cost of operating the printer.
When not being used by the company, the printer is hired to outside companies for
R per hour. This earns a contribution of R per hour. There is unlimited demand
for this facility.
Printer depreciation represents the estimated loss in market value per hour of usage.
Fixed production costs are absorbed into production using predetermined hourly rates.
The estimating costs are an allocation of the department's existing costs based on time
spent in discussions with the community's organizing committee for the printing of the
posters.
The company's policy is to apply a markup on total production costs to recover
administration costs and then to have a profit equal to of the selling price. However, as
the company would like to secure the order, the markup to recover the administration costs
will remain, but the profit mark up will be of the selling price.
REQUIRED:
Calculate the minimum selling price that the company should quote for the order. Give
reasons for your inclusion or exclusion of all costs given in the question.
Related Book For
Principles of Auditing and Other Assurance Services
ISBN: 978-0078025617
19th edition
Authors: Ray Whittington, Kurt Pany
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