Finn Ltd. processes, cans and sells herrings. The company operates a special department to produce the ketchup which is

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Finn Ltd Processes Cans And Sells Herrings The Company Operates A Special Department To Produce The Ketchup Which Is 1 (70.92 KiB) Viewed 42 times

Finn Ltd Processes Cans And Sells Herrings The Company Operates A Special Department To Produce The Ketchup Which Is 2 (18.84 KiB) Viewed 42 times

Finn Ltd. processes, cans and sells herrings. The company operates a special department to produce the ketchup which is added to the herrings in the production process. The cost of operating this department for the production of its annual requirement of 20,000 litres of ketchup is as follows:- Materials: € Rarefield herbs 6,000 kg.@ €1.50 Pickled Salt 3,000 kg. @ €2.00 Tomato sauce x 20,000 litres @ €4 9,000 6,000 80,000 95,000 Direct labour 4 operatives @ €6,000 Supervisors' Wages Manager's Salary 24,000 9,000 Depreciation of Equipment 12,000 General factory overhead (50% of direct labour) 8,000 12.000 160.000 An offer has been received from T. O'Matoe Ltd. to supply the ketchup at a price of €6.50 per litre for the next year. The following additional information is available:- (a). The company presently has stocks of raw materials as follows:- i. Rarefield Herbs 1,000 kg. ii. Pickled Salt 0 iii. Tomato sauce 4,000 litres (b). The stock of rarefield herbs originally cost €1.50 per kg. The cost of this material has recently been increased to €2 per kg. which is also its re-sale value. (c). The cost of pickled salt has recently fallen to €1.80 per kg. (d). The price of the tomato sauce has remained and is expected to remain at €4 per litre. However, unused stocks of the material could be sold at a price of €3 per litre. (e). If the department is closed, half the direct labour force and all the supervisors would be employed elsewhere in the company in lieu of hiring new employees. The other half of the direct labour force would be retired on pension equal to half their present wages. The department manager would be employed in another department instead of a new manager who would have to be hired at an annual salary of €15,000.
(f). The plant and machinery in the department was bought two years ago for €40,000 and is expected to last another three years when it will be disposed of for nothing. Its current scrap value is also zero. Required 1. Prepare cost statements to advise the management of Finn Ltd. as to whether they should accept T. O'Matoe Ltd.'s offer and close the department or continue to operate the department. What other factors should be considered before a final decision is made? 2.