QUESTION THREE

a$)$ Explain the main features of Relevant costs$-$

$(5$ Marks.

b$)$ CMR Ltd makes a single product which sells for Shs $30$ per unit and there is a great demand for the product. The variable cost of the product is Shs $16$ as detailed below.

Direct Materials

Direct Labor$(2$ Hours$)$

Variable Over head

Total cost

The labor force is currently working at full capacity and no extra time can be made available. Mr Crossby, a customer has approached the company with a request for the manufacture of a special order at Shs $8,000.$ The cost of the order would be Shs $3,000$ for direct material and $600$ labor hours will be required and variable overhead per hour should be shs $2.$

Required.

Determine whether the order should accepted or not and why.

$(12$ Marks$).$