Question $2$:

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:

$\backslash$table$[[,$Note,R$],[$Direct Materials,,$],[$Cardboard$-$ book value,$1,3750],[$Inks $-$ purchase price,$2,1350],[$Direct Labour,,$],[$Skilled $250$ hours at R$20\mathrm{.}00$ per hour,$3,10000],[$Unskilled $100$ hours at R$15\mathrm{.}25$ an hours,$4,1525],[$Variable Manufacturing Overheads,,$],[350$ hours at R$20\mathrm{.}00,5,7000],[$Printer$,,],[$Depreciation$-200$ hours at R$12\mathrm{.}50$ per hr$,7,2500],[$Fixed Production Costs,,$],[350$ hours at R$30\mathrm{.}00$ per hours,$8,10500],[$Estimating department costs,$9,200\_],[$Estimated Cost,,$31825\_]]$

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:

$1.$ The cardboard to be used is currently in stock at a value of R$3750.$ It is a specific colour

which has not been used for some time. The replacement price of the cardboard is R$5000,$

while its scrap value is $25\%$ 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.

$2.$ The inks required are not held in stock. They would have to be purchased in bulk at a

cost of R$1500.90\%$ of the ink purchased would be used in printing the posters. No other

use is foreseen for the remainder.

$3.$ 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

$50\%$ of the time required would be worked at weekends, for which a Premium of $25\%$ above

the normal hourly rate is paid. The norm al hourly rate is R$20\mathrm{.}00$ per hour.

$4.$ Unskilled labour is presently under$-$utilized and $200$ 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, $25$ 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.

$5.$ Variable overheads represent the cost of operating the printer.

$6.$ When not being used by the company, the printer is hired to outside companies for

R$30\mathrm{.}00$ per hour. This earns a contribution of R$15\mathrm{.}00$ per hour. There is unlimited demand

for this facility.

$7.$ Printer depreciation represents the estimated loss in market value per hour of usage.

$8.$ Fixed production costs are absorbed into production using predetermined hourly rates.

$9.$ 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.

$10.$ The company's policy is to apply a $20\%$ mark$-$up on total production costs to recover

administration costs and then to have a profit equal to $20\%$ of the selling price. However, as

the company would like to secure the order, the mark$-$up to recover the administration costs

will remain, but the profit mark$$ up will be $10\%$ of the selling price.

REQUIRED:

$1.$ 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. $(25)$

$2.$ Discuss five qualitative factors which should be considered when making the decision.

$(10)$

$3.$ Explain what a limiting or key factor is and give three examples of limiting factors in a

business environment. $(5)$