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FNS50217
AU
Flinders University
Delta generators manufacture small emergency power generators for use in small towns, hospitals and anywhere that there is a need. There are three different standard products but they also manufacture or modify units to suit a customer’s needs.
Delta has been asked to provide a generator to a country hospital for use in case there is a power supply failure. This will require some modification for this special order.Delta have decided to modify their largest model the G500 to suit the customer.
| Date of order | 1st January 2021 |
| Stock on hand G500 | 1 |
| Total invoice price for goods used in the manufacture of the standard G500. | $135,000 |
| Customs duty payable on parts and diesel motor in the manufacture of the generator. | 20% of the invoice price |
| Commission paid on sales | 7.5 % of selling price for each generator |
| Selling price per Unit | Invoice price + costs of modification and pre-delivery plus 50% of the invoice price |
| Freight in to Delta factory. | $2500 per unit |
| Modification and other costs to meet customer’s specifications. | $15000 |
| Pre-deliverystart-up and checking. | $1500 |
| Electrical Mechanics wages and time to travel to the site and install the generator. | $2500 |
| Freight out to the customers factory | $4250 |
| Electrical engineers fee for redesign of the generator to suit the Hospital’s needs. | $3000 |
Calculate the product cost of a modified G500.
Product cost is $186,500.
Workings:
| 135000 |
| 27000 |
| 15000 |
| 2500 |
| 1500 |
| 2500 |
| 3000 |
Calculate the selling price
Selling price is $227,000
|
| 186500 |
|
| 67500 |
| Selling price | 254000 |
Calculate the Net Realizable Value (NRV) of the modified G500.
Net realizable value is $44,200 and calculation is shown below.
| Particulars | Amount ($) | Amount ($) |
| Selling price | 2,54,000.00 |
|
| Less: Commission | 19,050.00 |
|
| Net proceeds from sale | 2,34,950.00 | |
| Less: Cost of production | 1,86,500.00 |
|
| Cost of freight to customer | 4,250.00 |
|
|
|
| 1,90,750.00 |
| Net realizable value | 44,200.00 | |
Because there has been numerous costs and expenses that have been incurred to modify the generator hence; its actual cost is greater than the invoice price initially paid to acquire the generator.
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