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Explain how you would treat and record each of the following cost information when preparing the contract account for a construction contract of H.Young ltd a construction company that has been operating in Kenya for the last three years.

Explain how you would treat and record each of the following cost information when preparing the contract account for a construction contract of H.Young ltd a construction company that has been operating in Kenya for the last three years.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please answer question B, note that the question is complete

(a) One Cycle Limited (OCL) is a manufacturer of sports bicycles. The company uses Pirelli-P44X tyres in its sports bicycles. The following information is provided in relation to Pirelli-P44X tyres for the year 2021. V The annual demand for Pirelli-P44X tyres is 400,000 tyres. V The ordering cost per order is Kshs 10,500. V The Holding cost per unit of Pirelli-P44X tyre is Shs 158. Required; i) Calculate the Economic order Quantity (EOQ) for the Pirelli-P44X tyres using the information provided above Page 1 of 5 ii) Calculate the total ordering cost and the total holding cost if the reorder quantity is as per the EOQ computed in (i) above. iii) Explain the trade-off that occurs between the ordering cost and the holding cost as the order quantity increases iv) Explain two assumptions of the Economic order Quantity (EOQ) _
Transcribed Image Text:(a) One Cycle Limited (OCL) is a manufacturer of sports bicycles. The company uses Pirelli-P44X tyres in its sports bicycles. The following information is provided in relation to Pirelli-P44X tyres for the year 2021. V The annual demand for Pirelli-P44X tyres is 400,000 tyres. V The ordering cost per order is Kshs 10,500. V The Holding cost per unit of Pirelli-P44X tyre is Shs 158. Required; i) Calculate the Economic order Quantity (EOQ) for the Pirelli-P44X tyres using the information provided above Page 1 of 5 ii) Calculate the total ordering cost and the total holding cost if the reorder quantity is as per the EOQ computed in (i) above. iii) Explain the trade-off that occurs between the ordering cost and the holding cost as the order quantity increases iv) Explain two assumptions of the Economic order Quantity (EOQ) _
(b) Explain how you would treat and record each of the following cost information when preparing the contract account for a construction contract of H.Young Itd a construction company that has been operating in Kenya for the last three years. i) The company purchased building materials including cement.sand.paint.roofing tiles and other material at a cost of Shs 250,000,000 ii) Some of the purchased building materials were defective and were returned to the supplier. These materials had been purchased at a cost of Shs 23,000,000. iii) A huge fire at the contract site destroyed building materials valued at Shs 35,000,000 iv) The company purchased a construction crane at a purchase cost of 20,000,000 v) The company hired dynamics networking company to install electrical cables in the building at a cost of 8,500,000 vi) The manual construction workers hired for the contract during the year were paid 45,000,000.
Transcribed Image Text:(b) Explain how you would treat and record each of the following cost information when preparing the contract account for a construction contract of H.Young Itd a construction company that has been operating in Kenya for the last three years. i) The company purchased building materials including cement.sand.paint.roofing tiles and other material at a cost of Shs 250,000,000 ii) Some of the purchased building materials were defective and were returned to the supplier. These materials had been purchased at a cost of Shs 23,000,000. iii) A huge fire at the contract site destroyed building materials valued at Shs 35,000,000 iv) The company purchased a construction crane at a purchase cost of 20,000,000 v) The company hired dynamics networking company to install electrical cables in the building at a cost of 8,500,000 vi) The manual construction workers hired for the contract during the year were paid 45,000,000.
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