Question 1
ICAN
•
2022
•
PERFORMANCE MANAGEMENT
•
mixed
Case Stimulus
You are the Management Accountant of Dankoli Nigeria Limited which specialises in the production of 3 products: Product 1, Product 2 and Product 3.
The following information is available for the first quarter of 2021:
Particulars Product 1 Product 2 Product 3
Sales units (‘000) 225 376 190
N N N
Selling Price per unit 15.0 13.00 10.00
Variable costs per unit 7.80 6.00 5.00
Attributable fixed costs 275,000.00 337,000.00 296,000.00
General fixed overhead is apportioned on the basis of sales value. The budgeted general fixed overhead is N1,668,000.
Additional Information
{
"label": "Particulars",
"content": "Quantity used Notes N \nDirect material: \nSteel 40 sq. meters at N50 per sq\/MM 1 2,000 \nBrass fittings 2 800 \nDirect labour: \nSkilled 100 hours at N80 per hour 3 8,000 \nSemi-skilled 40 hours at N50 per hour 4 2,000 \nOverhead 140 hours at N100 per hour 5 14,000 \nEstimating time 6 4,000 \n 30,800 \nAdministrative overhead This is 20% of production cost 7 6,160 \n 36,960 \nProfit at 25% of total cost 8 9,240 \nSelling Price 46,200"
}
{
"label": "Explanation on the notes",
"content": "(1) The steel is regularly used and has a current stock value of N50 per square meter. There are currently 400sq. meters in stock. The steel is readily available at a price of N55 per square meter. \n(2) The brass fittings would have to be bought specifically for the job. A supplier has quoted N800 for the fittings required. \n(3) The skilled labour is currently employed by the company and paid at the rate N80 per hour. If this job were undertaken, it will be necessary to either work 100 hours overtime which would be paid at time plus one half or reduce production of another product which earns a contribution of N130 per hour. \n(4) The semi-skilled labour to complete the job currently has sufficiently been paid idle time to be able to complete this work. \n(5) The overhead absorption rate includes power cost which is directly related to machine usage. If this job were undertaken, it is estimated that the machine time required would be 40 hours. The machine incurs power costs of N7.50 per hour. There are no other overhead costs which can be specifically identified with this job. \n(6) The cost of the estimation time is that attributable to the 4 hours taken by the engineers to analyse the drawings and determine the cost estimate given above. \n(7) It is the company’s policy to add 20% to the production cost as an allowance against administrative costs associated with the jobs accepted. \n(8) This is the standard profit added by the company as part of its pricing strategy."
}
Requirements
(
a
)
Calculate the budgeted contribution and profit of the Products and Company.
(
a
)
Calculate the budgeted profits on the assumption that Product 3 is discontinued with no effect on sales of the other products.
(
a
)
Calculate the extra sales in units and value required to cover the additional cost of advertising of N80,000 if such cost is treated as general fixed overhead.
(
b
)
Prepare on a relevant cost basis, the lowest cost estimate that could be used as the basis for a quotation. Explain briefly, your reasons for using each of the values in your estimates.
(
b
)
There may be a possibility of repeat orders from your company which would occupy part of normal production capacity. What factors need to be considered before quoting for this order?
(
c
)
Explain the following concepts: Incremental cost; Differential cost; Committed cost; Sunk cost; and Opportunity cost.
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About This Question
This is
Ican
2022
Performance Management
Question 1.
It is one of the
mixed
questions from the
2022
Ican
Performance Management
examination.