Question

Please solve Problem 3-11 from your textbook (Introduction to Managerial Accounting; Fifth Canadian Edition, by Brewer, Garrison, Noreen, Kalagnanam, and Vaidyanathan) considering the following new information and requirements:

The company received a request for a 300-Kg order of potassium aspartate.

The customer offers to pay $12.50per Kg for this order.

The company usually adds a 30%markup for this type of orders.

Material requirements

Material	Required Quantity (per Kg)	Price ($) per Kg
Aspartic Acid	190.00	5.75
Citric Acid	10.00	2.00
K2CO3	120.00	4.50
Rice	30.00	.50

The company pays its production workers an average of $20.00per hour plus $5.00per hour additional labour costs.

Expected direct labour time was 16 hours.

The company also estimated the following:

Materials related overhead	$585,000
Labour related overhead	$1,950,000
Direct material costs	$1,850,000
Direct labour cost	$1,250,000

Prepare a job cost sheet for the proposed job.  Ignore the job completion status area. (9 points)

What is the gross margin expressed in %, if the customer agrees to pay a price of cost plus 25%? (1 point). Please show all your calculations. (1 point)

What is the total gross margin per total order (expressed in dollar amount) (1 point). Please clearly show all you calculations. (1 point)

What is the gross margin per unit (per Kg) (expressed in dollar amount).  (1 point) Please clearly show all your calculations. (1 point)

Assume that the actual production level was only 280 Kg despite using the expected quantity of materials and labour.  What is the gross margin of this order: percentage-wise (1 point), total gross margin per order (dollar amount)(1 point), gross margin per unit (per Kg)(dollar amount)(1 point). Please clearly show all you calculations. (1 point)

Solution b:

Total expected cost of order = $3,218.76

Solution c:

Unit (per Kg) cost of this order = $3,218.76 / 300 = $10.73 per kg

Solution d:

Required selling price considering 30% markup = $10.73 + 30% of $10.73 = $13.95 per Kg

Price offered by customer = $12.50 per Kg

As price offered by customer is lesser than minimum required price therefore company should not accept price offered by customer.

Solution e:

If customer agree to pay cost + 25% then

Let cost = $100

Selling price = $125

Gross margin = $125 - $100 = $25

Gross margin percentage = $25 / $125 = 20%

The solutions are to help complete the following questions above.

Answer 1

Job Cost Sheet
Direct Material
Aspartic Acid	$ 1,092.50
Citric acid	$        20.00
K2CO3	$     540.00
Rice	$        15.00
	$ 1,667.50
Direct labour	$     400.00
Prime Cost	$ 2,067.50
Overheads
Material	$     527.29
labour	$     624.00
Total Cost	$ 3,218.79

If Customer agree to pay Cost +25% then

Let cost = $100

Selling price = $125

Gross margin = $125-$100 = $25

Gross margin percentage = $25/$125 = 20%

Total Cost	$ 3,218.79
Gross margin @ 25% of cost	$     804.70

Total Cost	$ 3,218.79
Gross margin @ 25% of cost	$     804.70
No. of units	300
Per Unit	$          2.68

Total Cost	$ 3,218.79
Gross margin	$     804.70
Sellign price	$ 4,023.49
Gross margin %	20%
No. of units	280
Per Unit	$          2.87