Question 8 (14 Marks) Domco makes and sells a single product, Product P. It is currently producing 112,000 units per mon

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Question 8 14 Marks Domco Makes And Sells A Single Product Product P It Is Currently Producing 112 000 Units Per Mon 1 (144.57 KiB) Viewed 37 times

Question 8 (14 Marks) Domco makes and sells a single product, Product P. It is currently producing 112,000 units per month, and is operating at 80% of full capacity. Total monthly costs at the current level of capacity are R611,000. At 100% capacity, total monthly costs would be R695,000. Fixed costs would be the same per month at all levels of capacity between 85% and 100%. At the normal selling price for Product P, the contribution/sales ratio is 60%. A new customer has offered to buy 25,000 units of Product P each month, at 20% below the normal selling price. Domco estimates that for every five units that it sells to this customer, it will lose one unit of its current monthly sales to other customers. Required: a) Calculate the variable cost per unit of Product P and total fixed costs per month. b) Calculate the current normal sales price per unit, and the contribution per unit at this price. c) Calculate the effect on total profit each month of accepting the new customer's offer, and selling 25,000 units per month to this customer. Recommend whether the customer's offer should be accepted. Question 9 (5 Marks) A contract is under consideration which would require 1,400 hours of direct labour. There is spare capacity of 500 hours of direct labour, due to the cancellation of another order by a customer. The other time would have to be found by asking employees to work in the evenings and at weekends, which would be paid at 50% above the normal hourly rate of R15. Alternatively, the additional hours could be found by switching labour from other work which earns a contribution of R5 per hour. Required: Calculate the relevant cost of direct labour if the contract is accepted and undertaken. Question 10 What are the five elements of a cost accounting system? (5 Marks)