A firm has received an order from customer X to be executed for RO1,800 ( all inclusive). The order requires the following materials, labour etc. Materials Requirements In stock Book value Replacement cost per kg Realizable value per kg A 100kg 50kg RO 250 RO 7 RO 3 B 300kg 140kg RO 280 RO 3 RO 1 Labour: Department I : 10 hrs @ RO15 Department II : 8 hrs @ RO12
A firm has received an order from customer X to be executed for RO1,800 ( all inclusive). The order requires the following materials, labour etc. Materials Requirements In stock Book value Replacement cost per kg Realizable value per kg A 100kg 50kg RO 250 RO 7 RO 3 B 300kg 140kg RO 280 RO 3 RO 1 Labour: Department I : 10 hrs @ RO15 Department II : 8 hrs @ RO12
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A firm has received an order from customer X to be executed for RO1,800 ( all inclusive). The order requires the following materials, labour etc.
Materials
Requirements
In stock
Book value
Replacement cost per kg
Realizable value per kg
A
100kg
50kg
RO 250
RO 7
RO 3
B
300kg
140kg
RO 280
RO 3
RO 1
Labour:
Department I : 10 hrs @ RO15
Department II : 8 hrs @ RO12
Variable Overhead : RO 150
Material A is regularly used by the firm and if used on this order has to be replaced for the use of other orders.
Material B has no use and is the result of excessive purchase made for an order executed two years ago.
Labour in department I is available for this order but labour in department II is fully engaged on another order which is earning a contribution of RO 20 per hour and if the order from X is to be executed, labour in department II has to be diverted from current operations. State whether the order received from customer X has to accepted.
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