Question: Haris, a self employed builder, has been asked to provide a fixed price quotation for some building work required by a customer. Haris’ accountant has compiled the following figure, together with some notes as a basis for quotation: RupeesNoteDirect material Brick 400 at Rs. 100 per brick 40,0001Other material 5,0002Direct labour Skilled 3,200 hours at Rs. 12 per hour 38,4003Unskilled 2,000 hours at Rs. 6 per hour 12,0004Other costs: Scaffolding hire 3,5005Depreciation on special equipment 2,0006General fixed overhead 5,2007Plans 2,0008Total Cost 108,100 Notes:The contract requires 400 bricks, 200 are already in stock and 200 will have to be bought in. This is a standard type of brick regularly used by Haris. The 200,000 in stock were purchased earlier in the year at Rs. 100 per brick. The current market price of this type of brick is Rs. 120 per brick. Scrap value of brick is Rs. 10.Other materials will be bought in as required; this figure represents the purchase price.Skilled labour is currently working a full capacity. If company accepts this order, skilled labour have to divert from Project X. Contribution margin of project X is Rs. 2 per hour.Haris employs four unskilled workers on contracts guaranteeing payment of Rs. 6 per hour. These unskilled labours are currently idle and would have sufficient spare time to complete the proposal under consideration.This is the additional cost of hiring scaffolding.Special equipment will have to purchase for completion of this order. Purchase price of special equipment is Rs 10,000 having a useful life of 5 years. After completion of this order, special equipment will be sold at Rs. 7,000.This represents the rental of Haris’ storage yard. If he does not undertake the above job he can rent his yard out to other company who will pay him rent of Rs 10,000.This is the cost of the plans that Haris has already had drawn the project.Required:Using relevant costing principles, calculate the total relevant cost.

solution let us first identify the relevant cost direct material : 400 bricks : since…

Answered: uestion: Haris, a self employed…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question: Haris, a self employed builder, has been asked to provide a fixed price quotation for some building work required by a customer. Haris’ accountant has compiled the following figure, together with some notes as a basis for quotation:

	Rupees	Note
Direct material
Brick 400 at Rs. 100 per brick	40,000	1
Other material	5,000	2
Direct labour
Skilled 3,200 hours at Rs. 12 per hour	38,400	3
Unskilled 2,000 hours at Rs. 6 per hour	12,000	4
Other costs:
Scaffolding hire	3,500	5
Depreciation on special equipment	2,000	6
General fixed overhead	5,200	7
Plans	2,000	8
Total Cost	108,100

Notes:

The contract requires 400 bricks, 200 are already in stock and 200 will have to be bought in. This is a standard type of brick regularly used by Haris. The 200,000 in stock were purchased earlier in the year at Rs. 100 per brick. The current market price of this type of brick is Rs. 120 per brick. Scrap value of brick is Rs. 10.
Other materials will be bought in as required; this figure represents the purchase price.
Skilled labour is currently working a full capacity. If company accepts this order, skilled labour have to divert from Project X. Contribution margin of project X is Rs. 2 per hour.
Haris employs four unskilled workers on contracts guaranteeing payment of Rs. 6 per hour. These unskilled labours are currently idle and would have sufficient spare time to complete the proposal under consideration.
This is the additional cost of hiring scaffolding.
Special equipment will have to purchase for completion of this order. Purchase price of special equipment is Rs 10,000 having a useful life of 5 years. After completion of this order, special equipment will be sold at Rs. 7,000.
This represents the rental of Haris’ storage yard. If he does not undertake the above job he can rent his yard out to other company who will pay him rent of Rs 10,000.
This is the cost of the plans that Haris has already had drawn the project.

Required:

Using relevant costing principles, calculate the total relevant cost.

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