Jan and Mia Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres of an electrical cable in which the business specialises. The estimating department of the business has produced the following information relating to the contract: Materials: The cable will require a steel core, which the business buys in. The steel core is to be coated with a special plastic, also bought in, using a special process. Plastic for the covering will be required at the rate of 0.10 kg/metre of completed cable. • Direct labour: Skilled: 10 minutes/metre; Unskilled: 5 minutes/metre. The business already holds sufficient of each of the materials required to complete the contract. Information on the cost of the inventories is as follows: Steel core £/metre Plastic £/kg Historic cost 1.50 0.60 Current buying-in cost 2.10 0.70 Scrap value 1.40 0.10 The steel core is in constant use by the business for a variety of work that it regularly undertakes. The plastic is a surplus from a previous contract where a mistake was made and an excess quantity ordered. If the current contract does not go ahead, this plastic will be scrapped. Unskilled labour, which is paid at the rate of £7.50 an hour, will need to be taken on specifically to undertake the contract. The business is fairly quiet at the moment which means that a pool of skilled labour exists that will still be employed at full pay of £12 an hour to do nothing if the contract does not proceed. The pool of skilled labour is sufficient to complete the contract. Required: Indicate the minimum price at which the contract could be undertaken, such that the business would be neither better nor worse off as a result of doing it.
Jan and Mia Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres of an electrical cable in which the business specialises. The estimating department of the business has produced the following information relating to the contract: Materials: The cable will require a steel core, which the business buys in. The steel core is to be coated with a special plastic, also bought in, using a special process. Plastic for the covering will be required at the rate of 0.10 kg/metre of completed cable. • Direct labour: Skilled: 10 minutes/metre; Unskilled: 5 minutes/metre. The business already holds sufficient of each of the materials required to complete the contract. Information on the cost of the inventories is as follows: Steel core £/metre Plastic £/kg Historic cost 1.50 0.60 Current buying-in cost 2.10 0.70 Scrap value 1.40 0.10 The steel core is in constant use by the business for a variety of work that it regularly undertakes. The plastic is a surplus from a previous contract where a mistake was made and an excess quantity ordered. If the current contract does not go ahead, this plastic will be scrapped. Unskilled labour, which is paid at the rate of £7.50 an hour, will need to be taken on specifically to undertake the contract. The business is fairly quiet at the moment which means that a pool of skilled labour exists that will still be employed at full pay of £12 an hour to do nothing if the contract does not proceed. The pool of skilled labour is sufficient to complete the contract. Required: Indicate the minimum price at which the contract could be undertaken, such that the business would be neither better nor worse off as a result of doing it.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Jan and Mia Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres
of an electrical cable in which the business specialises. The estimating department of the business
has produced the following information relating to the contract:
• Materials: The cable will require a steel core, which the business buys in. The steel core is to be
coated with a special plastic, also bought in, using a special process. Plastic for the covering will
be required at the rate of 0.10 kg/metre of completed cable.
Direct labour: Skilled: 10 minutes/metre; Unskilled: 5 minutes/metre.
The business already holds sufficient of each of the materials required to complete the
contract. Information on the cost of the inventories is as follows:
Steel core
Plastic
£/metre
£/kg
Historic cost
1.50
0.60
Current buying-in cost
2.10
0.70
Scrap value
1.40
0.10
The steel core is in constant use by the business for a variety of work that it regularly undertakes.
The plastic is a surplus from a previous contract where a mistake was made and an excess quantity
ordered. If the current contract does not go ahead, this plastic will be scrapped.
Unskilled labour, which is paid at the rate of £7.50 an hour, will need to be taken on specifically to
undertake the contract. The business is fairly quiet at the moment which means that a pool of skilled
labour exists that will still be employed at full pay of £12 an hour to do nothing if the contract does not
proceed. The pool of skilled labour is sufficient to complete the contract.
Required:
Indicate the minimum price at which the contract could be undertaken, such that the business
would be neither better nor worse off as a result of doing it.
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