Question 1 [15 Marks) The Hi Life Co (HL Co) makes sofas. It has recently received a request from a customer to provide

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Question 1 15 Marks The Hi Life Co Hl Co Makes Sofas It Has Recently Received A Request From A Customer To Provide 1 (167.69 KiB) Viewed 13 times

Question 1 [15 Marks) The Hi Life Co (HL Co) makes sofas. It has recently received a request from a customer to provide a one-off order of sofas, outside the normal budgeted production. The order would need to be completed within two weeks. The following cost estimate has already been prepared: Direct materials: Note GHS Fabric 200 m² at GHS17 per m² 1 3,400 Wood 50 m² at GHS8-20 per m² 410 2 Direct labour: Skilled 200 hours at GHS16 per hour 3 3,200 Semi-skilled 300 hours at GHS12 per hour 4 3,600 Factory overheads 500 hours at GHS3 per hour 5 1,500 Total production cost 12,110 Administration overheads at 10% of total production cost 6 1,211 Total cost 13,321 1/3 Notes 1. The fabric is regularly used by HL Co. There are currently 300 m² in inventory, which cost GHS 17 per m². The current purchase price of the fabric is GHS 17.50 per m². 2. This type of wood is regularly used by HL Co and usually costs GHS8-20 per m². However, the company's current supplier's earliest delivery time for the wood is in three weeks' time. An alternative supplier could deliver immediately but they would charge GHS8.50 per m². HL Co already has 500 m’ in inventory but 480 m² of this is needed to complete other existing orders in the next two weeks. The remaining 20 m’ is not going to be needed until four weeks' time. 3. The skilled labour force is employed under permanent contracts of employment under which they must be paid for 40 hours per week's labour, even if their time is idle due to absence of orders. Their rate of pay is GHS16 per hour, although any overtime is paid at time and a half. In the next two weeks, there is spare capacity of 150 labour hours. 4. There is no spare capacity for semi-skilled workers. They are currently paid GHS12 per hour or time and a half for overtime. However, a local agency can provide additional semi-skilled workers for GHS14 per hour. 5. The GHS3 absorption rate is HL Co’s standard factory overhead absorption rate; GHS1:50 per hour reflects the cost of the factory supervisor's salary and the other GHS1-50 per hour reflects general factory costs. The supervisor is paid an annual salary and is also paid GHS15 per hour for any overtime he works. He will need to work 20 hours' overtime if this order is accepted. 6. This is an apportionment of the general administration overheads incurred by HL Co. Required: Prepare, on a relevant cost basis, the lowest cost estimate which could be used as the basis for the quotation. Briefly explain your reasons for including or excluding each of the costs in your estimate.