Electronic Company has a Mobile shop in Al Khuwair. Company is planning to purchase a new...

 

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Electronic Company has a Mobile shop in Al Khuwair. Company is planning to purchase a new shop for OMR 80,000 to expand the capacity. The cost of existing shop is OMR 30,000 but company can sell it now for OMR 50,000. The furniture and fittings of the existing shop could be sold at OMR 1500 but the new furniture and fittings for both the shops will cost OMR 6000. Mr. Abdullah is a manager for the existing shop. The salary paid to him is OMR 10,000 per annum. If the new shop is purchased, he will spend half of his time in the new shop. Company is planning to appoint Mr. Salim as a part time assistant for new shop who will be paid OMR 4000 per annum. Heating and lighting expenses for new shop will be OMR 2000 per annum but company will save the service cost contract of OMR 300 for existing shop. Required: a) What do you understand by Relevant costing, Evaluate two relevant and two irrelevant costs in details? 7 Marks. b) Read the above scenario carefully. Using the relevant data suggest the management in making a decision on whether company should purchase a new shop. 8 Marks Electronic Company has a Mobile shop in Al Khuwair. Company is planning to purchase a new shop for OMR 80,000 to expand the capacity. The cost of existing shop is OMR 30,000 but company can sell it now for OMR 50,000. The furniture and fittings of the existing shop could be sold at OMR 1500 but the new furniture and fittings for both the shops will cost OMR 6000. Mr. Abdullah is a manager for the existing shop. The salary paid to him is OMR 10,000 per annum. If the new shop is purchased, he will spend half of his time in the new shop. Company is planning to appoint Mr. Salim as a part time assistant for new shop who will be paid OMR 4000 per annum. Heating and lighting expenses for new shop will be OMR 2000 per annum but company will save the service cost contract of OMR 300 for existing shop. Required: a) What do you understand by Relevant costing, Evaluate two relevant and two irrelevant costs in details? 7 Marks. b) Read the above scenario carefully. Using the relevant data suggest the management in making a decision on whether company should purchase a new shop. 8 Marks

Answer rating: 100% (QA)

In the short term decision making the management will consider the relevant cost of the cost element and irrelevant cost of the cost element For decis... View the full answer