Fadel, Inc. allocates engineering costs on the basis of the supervisor’s time and administration costs on the basis of the number of employees.

The following data have been collected:

Support Departments  Operating Departments

Engineering    Administration            Operating 1     Operating 2

Department costs                    $25,000           $15,000                       $200,000         $350,000

Number of employees             15                    10                                300                  450

Engineering supervisor’s time 30 hours         15 hours                      35 hours   20 hours

Use the direct method to allocate support department costs to the different departments. (3 marks)

Answer:

Q3. Rafique Inc. makes product A and sells at selling price of SAR 45 per unit. Badr Inc. wants to buy 5,000 units at SAR 27 per unit.  Rafique Inc. has a normal capacity of 101,000 units and projected sales to regular customers this year is 92,000 units. Per unit costs traceable to the product (based on normal capacity of 92,000 units) are listed below?

Direct Materials                      8.1

Direct Labor    `                       6.0

Variable Mfg. Overhead         6.2

Fixed mfg. overhead               4.8

Fixed administrative costs      0.8

Fixed Selling Costs                 0.4

Does the quantitative analysis suggest that the company should accept the special order? (2 marks)