a) Explain the significance of using relevant costing techniques in decision making (6 marks) b) Define...

 

  

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a) Explain the significance of using relevant costing techniques in decision making (6 marks) b) Define the following costs and give an example for each: 1. sunk costs 2. variable costs 3. opportunity costs (6 marks) c) Thomas Lid produces and sells clocks. A customer from the United States has requested a quotation from Thomas Ltd to supply 1.500 specialist grandfather clocks, and is prepared to pay £550 per clock. The following information relates to Thomas Lid's costing of the contract: Materials Specialist wood Paint and vamish (2,000 litres a 130,000 £65 per litre) Assembly finishing and packing 200,000 Direct labour 50,000 Indirect materials 150,000 General overheads Supervising costs Managers' salaries 300,000 25,000 30,000 The following information is aiso relevant: 1. The specialist wood of £200,000 is the original purchase cost. This material was bought some years ago and is no longer used by the company for its usual production. If not used for this contract, it can be sold for £25,000. 2. The paint and varnish is currently used by the company for all its products. The historic cost is £65 per litre; however current supplies can be purchased for £62.50 per litre. 3. All direct labour has spare capacity, which is sufficient for this contract and all labour would continue working. 4. The indirect materials of E150,000 include E5,000, which are no longer required for other production. If not required for this "grandfather contract', this £5,000 worth of materials could be sold for £3,000. 5. Managers are expected to take responsibility for all contracts. 6. Although two supervisors bave sufficient time to supervise this contract, a goodwill bonus of £1,000 per supervisor is anticipated. 7. It is estimated that 25% of general overheads are incurred as a direct result of accenting this contract. Materials Specialist wood Paint and varnish (2,000 litres @ 130,000 £65 per litre) Assembly/finishing and packing 200,000 50,000 150,000 300,000 25,000 30,000 Direct labour Indirect materials General overheads Supervising costs Managers' salaries The following information is also relevant: 1. The specialist wood of £200,000 is the original purchase cost. This material was bought some years ago and is no longer used by the company for its usual production. If not used for this contract, it can be sold for £25,000. 2. The paint and vanish is currently used by the company for all its products. The historic cost is £65 per litre; however current supplies can be purchased for £62.50 per litre. 3. All direct labour has spare capacity, which is sufficient for this contract and all labour would continue working. 4. The indirect materials of £150,000 include £5,000, which are no longer required for other production. If not required for this 'grandfather contract', this £5,000 worth of materials could be sold for £3,000. 5. Managers are expected to take responsibility for all contracts. 6. Although two supervisors have sufficient time to supervise this contract, a goodwill bonus of £1,000 per supervisor is anticipated. 7. It is estimated that 25% of general overheads are incurred as a direct result of accepting this contract. c) Using your own calculations, determine whether the contract should proceed. You should explain all costs. (13 marks) a) Explain the significance of using relevant costing techniques in decision making (6 marks) b) Define the following costs and give an example for each: 1. sunk costs 2. variable costs 3. opportunity costs (6 marks) c) Thomas Lid produces and sells clocks. A customer from the United States has requested a quotation from Thomas Ltd to supply 1.500 specialist grandfather clocks, and is prepared to pay £550 per clock. The following information relates to Thomas Lid's costing of the contract: Materials Specialist wood Paint and vamish (2,000 litres a 130,000 £65 per litre) Assembly finishing and packing 200,000 Direct labour 50,000 Indirect materials 150,000 General overheads Supervising costs Managers' salaries 300,000 25,000 30,000 The following information is aiso relevant: 1. The specialist wood of £200,000 is the original purchase cost. This material was bought some years ago and is no longer used by the company for its usual production. If not used for this contract, it can be sold for £25,000. 2. The paint and varnish is currently used by the company for all its products. The historic cost is £65 per litre; however current supplies can be purchased for £62.50 per litre. 3. All direct labour has spare capacity, which is sufficient for this contract and all labour would continue working. 4. The indirect materials of E150,000 include E5,000, which are no longer required for other production. If not required for this "grandfather contract', this £5,000 worth of materials could be sold for £3,000. 5. Managers are expected to take responsibility for all contracts. 6. Although two supervisors bave sufficient time to supervise this contract, a goodwill bonus of £1,000 per supervisor is anticipated. 7. It is estimated that 25% of general overheads are incurred as a direct result of accenting this contract. Materials Specialist wood Paint and varnish (2,000 litres @ 130,000 £65 per litre) Assembly/finishing and packing 200,000 50,000 150,000 300,000 25,000 30,000 Direct labour Indirect materials General overheads Supervising costs Managers' salaries The following information is also relevant: 1. The specialist wood of £200,000 is the original purchase cost. This material was bought some years ago and is no longer used by the company for its usual production. If not used for this contract, it can be sold for £25,000. 2. The paint and vanish is currently used by the company for all its products. The historic cost is £65 per litre; however current supplies can be purchased for £62.50 per litre. 3. All direct labour has spare capacity, which is sufficient for this contract and all labour would continue working. 4. The indirect materials of £150,000 include £5,000, which are no longer required for other production. If not required for this 'grandfather contract', this £5,000 worth of materials could be sold for £3,000. 5. Managers are expected to take responsibility for all contracts. 6. Although two supervisors have sufficient time to supervise this contract, a goodwill bonus of £1,000 per supervisor is anticipated. 7. It is estimated that 25% of general overheads are incurred as a direct result of accepting this contract. c) Using your own calculations, determine whether the contract should proceed. You should explain all costs. (13 marks)

Answer rating: 100% (QA)

a Relevant costs are the cost that are incurred while making specific investment decision These are avoidable costs ie it will not be incurred if the particular investment decision is not made Hence i... View the full answer