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You are the management accountant of a printing company whose main business is the printing of school textbooks. You have been asked to quote for the once off printing of a programme for the inauguration of the new city mayor. 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. A trainee accountant has produced the following cost estimate based upon the resources as specified by the production manager: Notes R 1 5 000 2.400 N Direct materials: Paper Inks Direct labour Skilled: 30 hours at R400 per hour Unskilled 100 hours at R30 per hour Variable overhead 350 hours at R4 Printing press depreciation 200 machine hours at R2.50 per hour Fixed production costs 200 machine hours at R6 per hour Estimating department costs NAU 12 000 3 000 1.400 500 2 100 600 27 000 GO The following are relevant to the cost estimate above: 1 The paper to be used is currently in stock at a value of R5 000. It is of an unusual colour which has not been used for some time. The replacement price of the paper is R8 000. While the paper could be sold to another printing company for R2 500. The production manager does not foresee any alternative use for the paper if it is not used for the programme for the inauguration of the city mayor 2 The inks required are not held in stock R3 000 They would have to be purchased in bulk at a cost of explorer ca... Lenovo S Poketalk with Lenovo 3. There is one skilled direct labourer who is paid for at a rate of R400 per hour for 40 hours working week irrespective of whether all the hours need to be worked. A total of 30 skilled direct labour hours will be required for printing the programmes. Currently the skilled labourer only has 10 spare hours and therefore to accommodate the printing of the programmes, 30 of the killed labour hours required would be worked after normal working hours (during the week and other the weekend). The skilled labourer gets paid an overtime premium of 50% for each overtime hour worked. Unskilled labour is employed on an hourly basis at a rate of R40 per hour regardless of when the hours are worked (t.e. no overtime premium is payable). 100 unskilled labour hours will be required. Variable overhead represents the cost of operating the printing press and binding machines, When not being used by the company, the printing press is hired to outside companies for R6.00 per hour. This earns a contribution of R3.00 per hour. There is unlimited demand for this facility. 4 5. 6 7. Fixed production costs are those incurred by and absorbed into production, using an hourly rate based on budgeted activity. The cost of the estimating department represents time spent in discussion with the city municipality prior to preparing the quote to gain an understanding of the exact requirements for the printing of the programme 8 Marks Sub Total total REQUIRED 8. The cost of the estimating department represents time spent in discussion with the city municipal prior to preparing the quote to gain an understanding of the exact requirements for the printing of ti programme. REQUIRED Marks Sub Total total 16 16 (a) Prepare a revised cost estimate using the relevant cost approach, showing clearly the minimum price that the company should accept for the order. Give reasons for each resource valuation in your cost estimate and why you chose to exclude some costs if any TOTAL MARKS 16

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