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MC Question 27
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 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 $16 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.
There is no spare capacity for semi-skilled workers. They are currently paid $12 per hour or time and a half for overtime. However, a local agency can provide additional semi-skilled workers for $14 per hour.
What cost should be included in the quotation for skilled labour and semi-skilled labour?
| Skilled | Semi-skilled | |
|---|---|---|
| A. | $3,600 | $4,200 |
| B. | $1,200 | $4,200 |
| C. | $3,600 | $5,400 |
| D. | $1,200 | $5,400 |