Sadiq Sega raga has recently received a special order from a client to supply $10$ gates within a month for RM $80,000$ each. If the company decides to accept this order, following cost information would have to be considered:

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a$)$ Material: $7$ meters of iron are required for a gate. At present, $10$ meters of iron are available in the stores with the total book value of RM $60,000.$ The current market value of iron is RM $7000$ per meter.

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b$)$ Labour: Requirement is $27$ hours per gate. The company expects to use $03$ idle workers for the job. A worker is required to work $180$ hours a month $(20$ working days$)$ and is paid with a monthly salary of RM $50,000.$ In addition, each worker is paid with an incentive commission of RM $10,000$ per order.

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c$)$ Overhead: The budgeted overhead cost is RM $100,000$ for a month and is absorbed at a rate of RM $50$ per labour hour. It is estimated that monthly overhead cost of the company would increase by RM $15,000$ per gate with this order.

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You are required to:

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a$)$ Evaluate and compute the relevant costs and irrelevant costs of each cost element with reasons. $(17$marks$)$

$$b$)$ State whether the company should accept the order based on relevant costs. $(3$marks$)$

Answer rating: 100% (QA)

a a Material Cost Relevant Cost The cost of iron needed for the gates is relevant as it directly imp... View the full answer