[balomenos86]

Yes I got it.. much appreciated

[balomenos86]

Hi Sir,

In the above example I calculated material correctly but labor. It seems that the word short on supply is key but I do not get it. Since we take the employees from product P it means that we keep paying same amount of 9.5 per hr. So this is not an extra cost no? No matter we accept the contract, we keep paying them the same. So we just need to calculate the lost contribution of P as an opportunity cost.

I know you will ask me if I have watched your lessons… Just to let you know that I did 🙂

[balomenos86]

Hi John,

Ennerdale has been asked to quote a price for a one-off contract. The company’s management accountant has
asked for your advice on the relevant costs for the contract. The following information is available:
Materials
The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production.
The company has 2,000 kg of material K currently in inventory which had been purchased last month for a total
cost of $19,600. Since then the price per kilogram for material K has increased by 5%.
The contract also requires 200 kg of material L. There are 250 kg of material L in inventory which are not required
for normal production. This material originally cost a total of $3,125. If not used on this contract, the inventory of
material L would be sold for $11 per kg.
Labour
The contract requires 800 hours of skilled labour. Skilled labour is paid $9.50 per hour. There is a shortage of
skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product P.
The following information relates to product P:
SP 100
Labour 38
other VC 22
Profit 40.
Prepare calculations showing the total relevant costs for making a decision about the contract in respect of
the following cost elements: Materials K,l and Labour.

a) Regarding the materials, why I need to calculate relevant costing taking into account all the 3000 Kgs instead of 1000 extra we buy? It says that we use it regularly and we have 2000 in inventory. Isnt it sunk cost?

b) Regarding labour,I found the opportunity cost of $8000. I checked the solution and on top of this cost, labour cost of $7600 (800*9.5) is added up. Why? We would pay this amount to the workers anyway. Why is it relevant cost?

Thank you! I apologize for the long text.

[balomenos86]

Hi,

So according to the courses we first reverse the accrual. So we Dr Accrual (300) from last year and Cr Expense account. Then we have this 600 payment. So for current year we should expense only July (200). Why we add 600 in the account? The rest 400 is expense from previous year.

[balomenos86]

I wish you could go to the exams instead of me 😛 !!! Thank you anyway!

[balomenos86]

Hi!

32.12 Panther owns her own business selling Gladiator dolls to department stores. At 30 June 20X2 she had the following balances in her books:

Trade receivables 31,450
Allowance for receivables (General) (450)
(as at 1 July 20X1) 31,000

A balance of $1,000 due from Selfrodges Co is considered irrecoverable and is to be written off. Horrids Co was in financial difficulty and Panther wished to allow for 60% of their balance of $800. She also decided to make a general allowance of 10% on her remaining trade receivables. What was the allowance for receivables in her statement of financial position at 30 June 20X2?

When it comes to statement of allowances I would do:

Specific: 800*60% = 480
General: (30,450 – 480)*10% = 2,997
The sum up is the total allowances.

For some reason I dont get, the solution is to deduct 800 from receivables to find the general allowance and not 480. May you please give an insight on this?

[balomenos86]

Hi Mr. Moffat.

“contingent assets and liabilities should not be recognized in financial statements according to IAS 37”

This is given as correct but I do not understand why. I know that sometimes we make a provision or we recognize a contingent asset in BS (according to the probability as mentioned in your courses).

Thank you

[balomenos86]

Hi Mr. Moffat. I have a question in regards to Kaplan exercise.

At January 2005, Mary has motor vehicles $15,000. On 31 Aug 2005, she sells a motor vehicle for $5,000 which had originally cost $8,000 and which had a CV of $4,000 at the date of disposal. She purchased a new motor vehicle which cost $10,000 on 30 Nov 2005.
Her policy is to depreciate motor vehicles at a rate of 25% pa on the straight-line basis, based on the number of months’ owned.
What is the depreciation charged for the year 31 Dec 2005?
The right answer is given to be $3,291.

According to my calculations:

1 jan to 31 Aug: 15,000*0.25*8/12 = 2,500
1 Sep to 30 Nov = (15,000-4,000)*0.25*3/12 = 687.5
1 Dec to 31 Dec = 10,000*0.25/12 = 208
Total = 3,396

Where is my mistake please??

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