Section A Relevant Costing 20 Marks Question 1 Study the scenario and complete the questions that follow: Bonmarche Ltd Bonmarche Ltd produces trophies and other memorabilia. Its financial director is always on the lookout for new opportunities. Bonmarche Ltd incurs the following costs: Description Rand value Direct material R100 per unit Direct labour R50 per hour Variable overheads R20 per unit Manufacturing fixed cost R500 000 in total Company fixed cost R600 000 in total Additional notes: • A new opportunity has arisen whereby Bonmarche Ltd can buy 50% of its production units from an independent supplier at R180 per unit. • Bonmarche Ltd produces and sells 50 000 units in a year. • It takes 0.5 hours to make a unit. • If the new arrangement is entered into, manufacturing fixed costs will decrease by 20%. Source: Hunde, T. (2020) Required Advise the financial director of Bonmache Ltd whether or not the new arrangement should be entered into, by applying the methodology of relevant costing. (12 Marks)
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Calculate the current cost per unit for producing the trophies in-house: Direct material cost: R100 per unit Direct labor cost: R50 per hour * 0.5 hours = R25 per unit Variable overhead cost: R20 per unit Total cost per unit = R100 + R25 + R20 = R145 per unit Show more…
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