Answer Happy

c. Moi Ltd absorbs overheads on a machine hour rate, currently $200 hour, of which C70 is for variable overheads and C130 for fixed overheads. The company is deciding whether to undertake a contract in the coming year. If the contract is undertaken, it is estimated that fixed costs will increase for the duration of the contract by €32,000. Required: Identify the relevant costs of the overheads for the contract. (4 marks) Examiner: Hellena Aryee Page 2 1 d. A machine which originally cost C80,000 has an estimated useful life of 10 years and is depreciated at the rate of C8,000 per annum. The net book value of the machine is currently C40,000 and the net sale proceeds if it were to be sold today are €25,000. Required: Identify whether the costs associated with the machine are relevant or not. If you think they are not (3 marks) relevant, give reasons. e. A new contract requires the use of 50 tons of metal ZX 81. There are 25 tons of ZX 81 in inventory at the moment, which were bought for C200 per ton. The company no longer has any use for metal ZX 81. The current purchase price is C210 per ton, and the metal could be disposed of for net scrap proceeds of C150 per ton. Required: What cost should be charged to the new contract for metal ZX 81? (2.5 marks)