04-04-2009, 05:59 AM
Bilanben Ltd manufactures grass-cutting equipment. The following was the cost of production for the year ended 31 December 2003, based on a normal capacity of 4500 units.
$
Direct Materials 157 500
Direct Labour 270 000
Variable Overheads 54 000
Fixed Overheads 125 000
606 500
There are 30 production workers who each work a 30-hour week and have two weeks unpaid holiday per annum.
Additional costs, based on a production of 5000 units, are administrative overheads of $140 000, of which 50% are fixed, and $150 000 for advertising.
Selling price is $250 per unit. The Sales Director has suggested that during 2004 he can sell 5000 units at $250 each.
Option 2
To hire new machinery for one year at a cost of $50 000. This would leave all variable costs unchanged. This was already under consideration and $17 500 had been spent on market research.
$
Direct Materials 157 500
Direct Labour 270 000
Variable Overheads 54 000
Fixed Overheads 125 000
606 500
There are 30 production workers who each work a 30-hour week and have two weeks unpaid holiday per annum.
Additional costs, based on a production of 5000 units, are administrative overheads of $140 000, of which 50% are fixed, and $150 000 for advertising.
Selling price is $250 per unit. The Sales Director has suggested that during 2004 he can sell 5000 units at $250 each.
Option 2
To hire new machinery for one year at a cost of $50 000. This would leave all variable costs unchanged. This was already under consideration and $17 500 had been spent on market research.
