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The Hatari Weapons Ltd. desires to submit a tender for 32 “string-to-surface” rockets required by Vita Ltd. it is estimated that each rocket will cost approximately Sh.40,000,000...

      

The Hatari Weapons Ltd. desires to submit a tender for 32 “string-to-surface”
rockets required by Vita Ltd. it is estimated that each rocket will cost approximately
Sh.40,000,000 for material and variable overhead costs. Total fixed costs will amount to
approximately Sh.1,600,000 over the two years it will take to build the rockets all of which
would have to be recovered against this contract.
The company, as a result of past experience, anticipates it could expect a 75 per cent learning
curve and that the steady state would not be achieved during this production run. Building
the first rocket would require approximately 400,000 hours of direct labour at a direct labour
cost of Sh.150 per hour. Variable overhead costs which vary with direct labour amount to
Sh.50 per direct labour hour.
Eight rockets will be built during the first year of the contract and the remaining 24 will be
completed during the second year. The Hatari Weapons Ltd. always adds 25 per cent profit
margin to the estimated costs of the contract for which they tender.
Required:
a) Calculate the total labour hours that will be required to build the 32 rockets.
b) Draw up a quotation showing the total price to be quoted, with details of the constituent
parts of the cost structure and the profit added.
c) Assuming the contract is awarded to the company, and no costs are deferred over the
two-year period, draft estimated income statements for the first and second years of the
contract life. Revenue is to be recognized on the basis of completed rockets. Fixed costs
are incurred equally each year.

  

Answers


Kavungya
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Kavungya answered the question on May 8, 2021 at 13:01


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    Date posted: May 7, 2021.  Answers (1)

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    Date posted: May 7, 2021.  Answers (1)

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    Kutwa Ltd. is a manufacturing company with two divisions; A and B. Division A
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    The unit production costs of product K are given below:
    fig2875944.png
    The manager of division B suggests that based on the above results, a transfer price of Shs.
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    division B a reasonable profit. This would lead to an increase in the output and overall
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    Required:
    ( a) Calculate the effect of the existing transfer pricing system on the company‟s profits.
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    Date posted: May 7, 2021.  Answers (1)

  • Nairobi Manufacturers Ltd. produces component X on machine Y at a rate of 4,000 units per month. Machine Z uses component X at the rate of...(Solved)

    Nairobi Manufacturers Ltd. produces component X on machine Y at a rate of 4,000
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    Date posted: May 7, 2021.  Answers (1)