Question $8$

$(14$ Marks$)$

Domco makes and sells a single product, Product P$.$ It is currently producing $112,000$ units per month, and is operating at $80\%$ of full capacity. Total monthly costs at the current level of capacity are R$611,000.$ At $100\%$ capacity, total monthly costs would be R$695,000.$ Fixed costs would be the same per month at all levels of capacity between $85\%$ and $100\%.$

At the normal selling price for Product $P,$ the contribution$/$sales ratio is $60\%.$

A new customer has offered to buy $25,000$ units of Product P each month, at $20\%$ below the normal selling price. Domco estimates that for every five units that it sells to this customer, it will lose one unit of its current monthly sales to other customers.

Required:

a$)$ Calculate the variable cost per unit of Product $P$ and total fixed costs per month.

b$)$ Calculate the current normal sales price per unit, and the contribution per unit at this price.

c$)$ Calculate the effect on total profit each month of accepting the new customer's offer, and selling $25,000$ units per month to this customer. Recommend whether the customer's offer should be accepted.

Question $9$

$(5$ Marks$)$

A contract is under consideration which would require $1,400$ hours of direct labour. There is spare capacity of $500$ hours of direct labour, due to the cancellation of another order by a customer. The other time would have to be found by asking employees to work in the evenings and at weekends, which would be paid at $50\%$ above the normal hourly rate of R$15.$

Alternatively, the additional hours could be found by switching labour from other work which earns a contribution of R$5$ per hour.

Required:

Calculate the relevant cost of direct labour if the contract is accepted and undertaken.

Question $10$

$(5$ Marks$)$

What are the five elements of a cost accounting system?