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MC Question 26
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, in excess of normal budgeted production. The order would need to be completed within two weeks. The following cost estimate has already been prepared:
A quotation now needs to be prepared on a relevant cost basis so that HL Co can offer as competitive a price as possible for the order.
| $ | ||
|---|---|---|
| Direct materials: | ||
| Fabric | 200 m2 at $17 per m2 | 3,400 |
| Wood | 50 m2 at $8·20 per m2 | 410 |
| Direct labour: | ||
| Skilled | 200 hours at $16 per hour | 3,200 |
| Semi-skilled | 300 hours at $12 per hour | 3,600 |
| Factory overheads | 500 hours at $3 per hour | 1,500 |
| Total production cost | 12,110 | |
| General fixed overheads as 10% of total production cost | 1,211 | |
| Total cost | 13,321 |
The fabric is regularly used by HL Co. There are currently 300 m2 in inventory, which cost $17 per m2. The current purchase price of the fabric is $17·50 per m2.
The wood is regularly used by HL Co and usually costs $8·20 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 $8·50 per m2. HL Co already has 500 m2 in inventory but 480 m2 of this is needed to complete other existing orders in the next two weeks. The remaining 20 m2 is not going to be needed until four weeks’ time.
What is the cost of the fabric and the wood which should be included in the quotation?
| Fabric | Wood | |
|---|---|---|
| A. | $3,500 | $419 |
| B. | $3,400 | $419 |
| C. | $3,500 | $255 |
| D. | $0 | $255 |