There is a continuing demand for three sub-assemblies, A, B and C made and sold byChimseu Enterprises. Sales in each batch are in the ratio of 1:2:4 respectively and sellingprices are K2,150; K2,500 and K3,000 respectively. Each sub-assembly consists of a copperframe onto which are fixed the same components but in differing quantities as follows:Sub-assemblyFrameComponentComponentComponent

DEF

A1514

B1175

C1351

Buying in costs per unitK200K80K50K30

Operation times by labour for each sub-assembly are:

Sub-assemblySkilled labourUnskilled labour

A22

B1.52

C1.53

The skilled labour is paid K60 per hour and the unskilled K45 per hour. The skilled labouris located in a machining department and the unskilled labour in the assembly department.A five-day week of 37.5 hours is worked and each accounting period is for four weeks.

Variable overhead per sub-assembly is A K50, B K40 and C 35. At the end of the currentyear, stocks are expected to be as shown below but because interest rates have increasedand the company utilizes a bank overdraft for working capital purposes, it is planned toeffect a 10% reduction in all finished sub-assemblies and bought in stocks during Period 1of the forthcoming year.

Forecasts at current year end:

Sub-assembly A300

B 700

C 1,600

Copper frames 1,000

Component D 4,000

Component E 10,000

Component F 4,000

Overhead for the forthcoming year is budgeted to be, production K7,280,000, selling anddistribution K3,640,000, and administration K3,380,000. These costs are all fixed and areexpected to be incurred evenly throughout the year and are treated as period costs.

Within period 1, it is planned to sell one thirteenth of the annual requirements which areto be the sales necessary to achieve the company profit target of K65 million before tax.