The Ceo Of Your Company Has Approached You For Advice On A Special Order For A Customer That She Intends To Tender For 1 (81.16 KiB) Viewed 40 times
The Ceo Of Your Company Has Approached You For Advice On A Special Order For A Customer That She Intends To Tender For 2 (81.16 KiB) Viewed 40 times
The CEO of your company has approached you for advice on a special order for a customer that she intends to tender for. She has supplied the following cost estimates: $ Material 8,000 Material K 16,000 Direct labour 12,000 Supervision cost 4,000 Overheads 24,000 64,000 1. 3. You ascertain the following: The CEO estimates she has spent time in negotiation valued at $5,000. 2. Material J is in stock and the original cost is given above. There is no other use for material, apart from using it on the special order within the factory and it would cost $3,500 to dispose of. Material K would have to be ordered at the cost shown above. Direct labour costs of $12,000 relate to workers who will be transferred to the special order from another project, in replacement extra labour will need to be recruited to the other project at a cost of $14,000 4. Supervision costs have been charged to the project on the basis of 334, % of labour costs. Supervision will be carried out by existing staff within their normal duties. Overheads have been charged to the project at the rate of 200% on direct labour. 6. The project will need machinery that will have no other use to the company apart from the special order. The machinery will have to be purchased at a cost of $20,000 and the disposed of for $10,500 when the special order is completed. The CEO tells you that the customer is prepared to pay up to a maximum of $60,000 and she has been informed that a competitor is prepared to fulfill the order at that price. Her costing indicates that she cannot charge less than $80,000 and this does not take into consideration the cost of the machine and profit to be taken on the project. 5. Required: (a) Explain the meaning of the terms incremental cost and committed cost in the context of decision making. (3 marks) (b) Cost the project for the CEO, clearly stating how you have arrived at your figures and giving reasons for the exclusion of other figures. (10 marks) (c) Explain the key issues you would raise in a report to the CEO comparing her analysis with yours. (6 marks) (d) Identify four non-monetary factors that should be taken into account before tendering for this project (6 marks)
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