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6 marksCost Elements, Classification and Cost Curves

CAPE Accounting Unit 2 · 2014 · Paper 2 · Question 1(b)(ii)

Roadside Ltd currently buys 12,500 monitors per year at 17,500 each. Cost estimates to manufacture internally: Direct Material 7,500, Direct Labour 5,250, Variable Factory Overhead 1,500, Fixed Manufacturing Overhead (avoidable) 1,875, Fixed Manufacturing Overhead (unavoidable) 2,625, Total Unit Cost $18,750.

If the factory space used for manufacturing monitors could instead be rented out for $750,000 per month, determine whether the company should make or buy the monitor, showing all workings.

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Other parts of this question

  1. 1(a)(i)List THREE components of 'carrying cost'.[3 marks]
  2. 1(a)(ii)State TWO components of 'ordering cost'.[2 marks]
  3. 1(a)(iii)Calculate the recommended order quantity (E.O.Q.) for the tablets using the formula: \text{E.O.Q.} = \sqrt{\frac{2 D C_o}{C_c}} where D = Annual demand,…[5 marks]
  4. 1(a)(iv)Calculate how many times orders should be placed per year.[2 marks]
  5. 1(a)(v)Calculate the reorder point in units using: \text{Maximum usage} \times \text{maximum lead time}[3 marks]
  6. 1(b)(i)Determine whether the company should continue to purchase the monitors, showing all workings.[5 marks]
  7. 1(c)(i)Calculate the direct labour cost and production overhead chargeable to EACH job where overtime is worked to meet production targets of the company itself.[5 marks]
  8. 1(c)(ii)Calculate the direct labour cost and production overhead chargeable to EACH job where the overtime is worked at the customer's request.[4 marks]

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