ACTIVITIESAssessed Task 2: Relevant Cost Analysis of an Export Sales OpportunityThe Board of Directors has asked you to evaluate an opportunity to export robots to a potential new overseas retail customer, Big Store Inc.. Big Store Inc. would like to run a trial promotion of your robots. The company would like to buy 100 robots from your company in 2034 at a special net sales price of W$3,000 per robot. If the trial is successful, the company has indicated it is likely to double the order quantity and would be prepared to pay a higher net sales price of W$4,000 per robot from 2035 onwards.Further information is provided below:1. Special EquipmentThe robots for this contract with Big Store Inc. will require some modifications from the standard robot which your company produces and this will involve additional annual fixed production overheads of W$25,000 to cover the cost of hiring the special equipment required for this purpose.2. Raw MaterialsThe contract will require some special component materials in addition to the standard component raw materials. The company has a stock of 150 units of these special components in inventory which were purchased some years ago, but which have been regarded as surplus to requirements and have been fully written off in the accounts. These special components originally cost W$400 per unit and they currently cost W$500 per unit to purchase. If not used for this project, the inventory of special components will be sold in 2034 for sales proceeds of W$200 per unit. One special component will be required per robot.3. Staff TrainingAlso, an extra W$5,000 as a one-off cost for staff training will be required to ensure that production staff are able to use the special equipment required for this contract.4. Production StaffIf the order is accepted, this will require one of your existing production staff to oversee the project as a project manager on a full-time basis. This means an additional production employee will need to be recruited to cover the project managers current duties.
5. Sales Staff Time and Travel and Subsistence CostsOne of your companys sales staff estimates she spent 10% of her working hours in 2033 on this project which included travelling for meetings with Big Store Inc. executives. The costs she incurred on travel and subsistence in relation to these meetings amounted to W$8,000 which was included in Overheads in 2033.6. Marketing CostsBig Store Inc. will run a special advertising campaign in 2034 to support this trail which will cost W$40,000 but requires your company to pay for 50% of these costs.7. Fixed Cost Recovery RateFor costing special projects such as this, your company has in the past applied a rate of 10% of net revenues arising when evaluating new orders in order to recover the business recurring fixed costs (including admin expenses, overheads and direct labour costs).Required:Prepare a report for the Board of Directors in which you advise on whether the above order should be accepted. You should specifically address the following requirements:
Explain the principles of relevant cost analysis including the concept of opportunity costs.b) Calculate the annual total relevant cost and revenues of this order in both 2034 and thereafter.c) Explain the reasoning for your treatment of each item referred to in the information above as either relevant or irrelevant in your analysis as appropriate. Make clear any assumptions made.d) Discuss three further considerations beyond the relevant cost analysis you have performed which you believe should be taken into account before a final decision is made.e) Advise management on whether the order should be accepted.
Word limit: 1,200 words (excluding tables and appendices)
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