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Hello!
Bits and Pieces (B&P) operates a retail store selling spares and accessories for the car market. The store has previously only opened for six hours per day, six days per week for the 50 working weeks in the year, but B&P is now considering also opening for trading on Sundays.Average daily sales from Monday through to Saturday is $10,000 per day with an average gross profit margin of 70%.
Sunday revenues are expected to be 60% more than the average daily revenues for the other days.
B&P buys all its goods from one supplier. This supplier gives a 5% discount on all purchases if annual spend exceeds $1,000,000.
The store will have to be supervised by a manager, currently employed by the company and paid an annual salary of $80,000. If he works on a Sunday, he will take the equivalent time off during the week when the assistant manager is available to cover for him at no extra cost to B&P. He will also be paid a bonus of 1% of the extra sales generated by Sunday trading.
The store will have to be lit at a cost of $30 per hour and heated at a cost of $45 per hour. The heating will come on two hours before the store opens in the 25 “winter” weeks to make sure it is warm enough for customers to come in at opening time. The store is not heated in the other weeks.
It is the company policy that gross profit is stated after deducting the costs of the goods sold. Staff costs, energy and rental costs are not deducted from sales in determining gross profit.
The store employs four employees (in addition to the manager). They each work five days a week, and are paid $200 per week. They all currently work on Saturdays and take a day off in lieu of this during the week.
If Sunday trading is introduced, two of the existing staff will work on Sundays instead of Saturdays and be paid a premium of $30 each. Two part-time employees will be hired for $20 each per Saturday and $30 each per Sunday.
Question
5. What is the annual relevant cost of the labour for Sunday trading?A.$7,000
B.$8,000
C.$10,000
D.$12,000I get very confused with replacement costs and ‘loss of contribution from regular use’. I am aware that there is no mention of contribution but can I not take the direct cost of labour from regular use as ‘loss of wage’ or something?? I also don’t completely understand how I need to calculate replacement cost?
Where is this question from?
In the Kaplan Kit it is a section C question not B
I have a feeling the question has been modified by another publisher.
Based on the above I am getting a different answer so I don’t think you should worry about this.In answer to your question on replacement cost …. here goes
Replacement cost refers to the cost of replacing an asset or resource that is used up or no longer functional. It is the cost of acquiring a new item to replace the one that is being used. In the context of relevant costing, replacement cost is relevant when considering the cost of replacing materials or resources that are used in a project or activity.
On the other hand, “loss of contribution from regular use” refers to the potential revenue or contribution that is lost when resources or labour are diverted from their regular use to a different project or activity. This loss of contribution is relevant when assessing the cost and impact of using resources or labour for a different purpose.To calculate replacement cost, you would need to determine the current market price or cost of acquiring a new item or resource. This cost may include factors such as purchase price, delivery costs, installation costs, and any other expenses associated with acquiring the replacement. It is important to consider the specific context and factors relevant to the situation when calculating replacement cost.
Regarding the direct cost of labour from regular use, it is not considered as a “loss of wage” in the context of relevant costing. The relevant cost of labour in relevant costing is typically the additional cost or impact of using labour for a specific project or activity, taking into account factors such as wages, benefits, and any potential loss of contribution from diverting labour from other tasks.
It is important to carefully analyse the specific scenario and factors involved in order to accurately calculate and consider replacement costs and the impact of diverting resources or labour.
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