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

And please solve the questions based on the 30% mark up.

Answer 1

1) computation of job costing for the proposed job :

JOB COST SHEET
particulars	amount	amount
direct materials : (quantity * price per kg)
asparic acid (190 * 5.75)	1092.50
citric acid (10 * 2)	20
k2co3 (120 * 4.50)	540
rice (30 * 0.50)	15
total direct material cost		1667.5
direct labor (labor hour * cost per hour) = (16 * 25)		400
overheads :
material related (working note 1)	527.26
labor related (working note 2)	624
total variable overheads applied		1151.26
total cost of order		3218.76

working note 1 :

material = material related to overhead / direct material cost

= (585000 / 1850000) * 100

= 31.62%

material related = 31.62 % of total direct material cost

= (31.62 * 1667.5) / 100

= 527.26 (rounded off)

working note 2 :

labor = labor related overhead / direct labor cost

= (1950000 / 1250000) * 100

= 156%

labor related = 156% of total direct labor cost

= (156 * 400) / 100

= 624

2) calculation of expected gross margin when cost plus 25% :

the customers agree to pay cost + 25% excess

cost = $ 100 (assumed)

then selling price = cost + 25%

= 100 + 100 *25%

= 100 + 25

= $125

gross margin = selling price - cost price

= 125 -100

= $25

gross margin percentage = gross margin / selling price

= (25 / 125) * 100

= 20%

3) calculate total gross margin per total order :

total cost = $ 3218.76

gross margin percentage = 25%

gross margin = total cost * gross margin percentage

= 3218.76 * 25%

= $ 804.69

4) calculate gross margin per unit :

gross margin = 804.69

number of units = 300

gross margin per unit = gross margin / number of units

= 804.69 / 300

= $ 2.68

5) when actual production level was 280kgs :

total cost = 3218.76

gross margin = 804.69

selling price = cost + gross margin

= 3218.76 + 804.69

= 4023.46

number of units = 280

gross margin of this order =gross margin / selling price

= (804.69 / 4023.46) *100

= 20%

gross margin per unit = gross margin / number of units

= 804.69 / 280

= $ 2.87