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Managerial Accounting

5. Machine requirements Man hour costs 1,000*15=$15,000 1,000*12.50=12,500 2,500 Man hour costs forms part of direct labour costs since it must be met for the process to take place. 6. Engineer’s charges Monthly salary= 42,000/12=$3,500 This forms part of the indirect labour cost since it is not primary for the initial stage of the project. (ii) The valuation in the context of the proposed tender is valid hence need to be considered by the company. The direct costs being considered on the basis of absorption cost are lower than the overall revenues expected from the entire project. Direct material A is the direct material A available in stock and awaiting to be used in the manufacturing process. Direct material B is the direct material B available in stock and awaiting to be used in the manufacturing process. Direct Labour is the amount of direct labour that will be used in the production process to generate initial revenue. (iii) Revised schedule Engineering specification 2,000 Direct material A 72,000 Direct Material B 3,000 Components 9,000 Direct Labour 15,000 Supervision 400 Machine hire 3,000 Overhead costs 6,500 Total 110,900 (b) . Total revenue from the project $100,000 Direct material A 72,000 Direct Material B 3,000 Direct Labour 15,000 Supervision 400 Machine hire 3,000 Overhead costs 6,500 (99,900) Profits $100 The expected profits is higher than the actual profits which will lead into conflicts. Absorption costing basis tends to inflate the profits thus making them higher than the actual. (c) Non financial matters for consideration Effects on creditors The firm must adequately consider the impact its operation will have on its creditors. Labour relations. This is not financially related but it largely affects how a firm can manage to achieve its goal. 2. Althepal Ticket sales earnings (500*5) ?2,500 Food & drinks (500*3) ?1,500 Althepal’s hiring cost ?375 Special licence- ?25 (?1,900) Expected Profits ?600 McBoy Ticket sales earnings (250*5) ?1,250 McBoy hiring cost and transport (?150) Expected Profits ? 1,100 Break even point Althepal X= 400/(5-3)=200 units McBoy=150/(5-3)=75units Margin of safety Althepal 400-200=200 McBoy 150-75=75 Analysis By considering the expected profits from each of the two options, McBoy will result in higher profits than Althepal hence it should be undertaken. The expected profit of Althepal is greatly reduced due to the cost of providing the drinks and food as well as the cost of special licence charged for the sale of drinks. Both the margin of safety and break even point for both options are the same indicating that there are no external costs incurred. 3. Internal Rate of Return Definition There are basically many methods used in capital budgeting to determine the viability of investments such as Net Present Value (NPV), Payback Period (PP), Modified Internal Rate of Return (MIRR), Profitability Index (PI) and the internal Rate of Return (IRR). All these techniques aim at guiding a firm on the right choice to make when deciding on the best project to undertake. However the decisions on which technique to rely on depend on the ...Show more

Summary

Name Instructor Course Date Managerial Accounting 1. (a) (i) Valuation basis 1. Since the absorption basis lays emphasis on direct costs, $500 per day on salary is not to be considered under project cost. 2. Material A requirements 10,000 square metres 10,000*6 =60,000 5,000*6.30= 31,500 Total expected direct cost on material A=$91,500 Actual cost of material A 7*10,000=$70,000+ (5,000*6.50) =$102,500 102,500-91,500=11,000 The inventory of material A will form part of direct cost for material A to be used in the manufacturing process…
Author : wmccullough
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