Page 82 - P1 Integrated Workbook STUDENT 2018
P. 82
Chapter 5
Material B
Are the materials in inventory? – Yes, some. The remaining requirement
(1,400 kgs) need to be purchased at $3.50 per kg. These will therefore cost
$4,900.
The inventory then needs to be valued.
Will they be replaced? – No. There is no other use for the material.
Will they be used for other purposes? – No.
Relevant cost = Net realisable value ($1 per kg)
Relevant cost for the inventory = 600 kgs × $1 = $600
Total relevant cost = $4,900 + $600 = $5,500
Skilled labour
Is there spare capacity? – Yes, for half of the hours. These will have a nil
relevant cost.
The remaining 2,000 hours need to be valued.
Can additional labour be hired? – Yes, via overtime
Relevant cost = direct labour cost. This will be the overtime cost of $12 per
hour
Total relevant cost = $12 × 2,000 hours = $24,000
Unskilled labour
Is there spare capacity? – No
Can additional labour be hired? – No
Relevant cost = direct labour cost plus forgone contribution = $6 + ($25 – $15
– $6) = $10 per hour
Total relevant cost = $10 × 3,000 hours = $30,000
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