Question 3 Singapore Kitchens Pte Ltd (SKPL) provides a one-stop service for kitchen installation. The company has been
Posted: Mon Apr 25, 2022 7:33 am
Question 3
Singapore Kitchens Pte Ltd (SKPL) provides a one-stop service for
kitchen installation. The company has been invited to submit a bid
for a large residential property to install a kitchen in the first
apartment of a large and exclusive development.
SKPL is very eager to work for this contractor, and wishes to
submit a bid price that is priced to win. However, the bid cannot
be loss-making; i.e. all relevant costs must be fully recovered.
The financial accountant has drafted the following quotation (‘Job
210’) for your review.
Quotation – Job210
Cabinets (10 units @ $100 per unit)
1
1,000
Screws (100 @ $0.50 per unit)
2
50
Semi-skilled labour (120 hours @ $12.50 per hour)
3
1,500
Skilled labour (120 hours @ $25 an hour)
4
3,000
Caustic soda
5
100
Electrical appliances
6
3,000
Time cost (2 days @$200 per day) on quote preparation
7
400
Total variable costs
9,050
Allocated head office cost (estimated)
8
2,255
Total costs
11,305
Mark-up @ 30% (rounded up to the nearest dollar)
9
3,392
Price
14,697
Note 1
10 cabinets will be needed. These are in continuous use by the
company. The current purchase price is $120 each. 5 are held in
stock at a carrying cost of $100 each. They could be sold second
hand for $60.
Note 2
Screws will need to be purchased. They cost $50 for a box of
100.
Note 3
Semi-skilled labour is currently paid $12.50 an hour. Half of the
work needed on Job 210 can be absorbed in idle time, the other half
will need to be done as overtime, paid at 1.5 times the regular
hourly wage.
Note 4
Skilled labour is currently fully occupied on other work which
generates a contribution of $25 an hour. Skilled labour is paid $25
an hour. Job 210 can either be done by diverting labour away from
existing work, or by paying overtime at a rate of 1.5 times the
regular hourly wage.
Note 5
Site preparation require the use of caustic soda. A tub is
available, purchased at $100 three years ago for a job that did not
materialise. If it is not used for Job 210, disposal cost would be
$50.
Note 6
Electrical appliances include the cost of the oven, refrigerator,
cooking hob and hood, washer and dryer. The cost of $3,000 is
inclusive of the supplier’s markup of 30%.
Note 7
This is my prorated salary cost, being $200 per day.
Note 8
25% is added to cover a share of head office costs.
Note 9
30% is our normal mark-ups for other projects.
Required:
(a) Prepare a revised quotation, justifying revisions that you
make, and clearly indicating the minimum price that should be
charged for Job 210.
(15 marks)
(b) Explain the implications in using relevant costing to set
prices for future work for this customer.
(6 marks)
Singapore Kitchens Pte Ltd (SKPL) provides a one-stop service for
kitchen installation. The company has been invited to submit a bid
for a large residential property to install a kitchen in the first
apartment of a large and exclusive development.
SKPL is very eager to work for this contractor, and wishes to
submit a bid price that is priced to win. However, the bid cannot
be loss-making; i.e. all relevant costs must be fully recovered.
The financial accountant has drafted the following quotation (‘Job
210’) for your review.
Quotation – Job210
Cabinets (10 units @ $100 per unit)
1
1,000
Screws (100 @ $0.50 per unit)
2
50
Semi-skilled labour (120 hours @ $12.50 per hour)
3
1,500
Skilled labour (120 hours @ $25 an hour)
4
3,000
Caustic soda
5
100
Electrical appliances
6
3,000
Time cost (2 days @$200 per day) on quote preparation
7
400
Total variable costs
9,050
Allocated head office cost (estimated)
8
2,255
Total costs
11,305
Mark-up @ 30% (rounded up to the nearest dollar)
9
3,392
Price
14,697
Note 1
10 cabinets will be needed. These are in continuous use by the
company. The current purchase price is $120 each. 5 are held in
stock at a carrying cost of $100 each. They could be sold second
hand for $60.
Note 2
Screws will need to be purchased. They cost $50 for a box of
100.
Note 3
Semi-skilled labour is currently paid $12.50 an hour. Half of the
work needed on Job 210 can be absorbed in idle time, the other half
will need to be done as overtime, paid at 1.5 times the regular
hourly wage.
Note 4
Skilled labour is currently fully occupied on other work which
generates a contribution of $25 an hour. Skilled labour is paid $25
an hour. Job 210 can either be done by diverting labour away from
existing work, or by paying overtime at a rate of 1.5 times the
regular hourly wage.
Note 5
Site preparation require the use of caustic soda. A tub is
available, purchased at $100 three years ago for a job that did not
materialise. If it is not used for Job 210, disposal cost would be
$50.
Note 6
Electrical appliances include the cost of the oven, refrigerator,
cooking hob and hood, washer and dryer. The cost of $3,000 is
inclusive of the supplier’s markup of 30%.
Note 7
This is my prorated salary cost, being $200 per day.
Note 8
25% is added to cover a share of head office costs.
Note 9
30% is our normal mark-ups for other projects.
Required:
(a) Prepare a revised quotation, justifying revisions that you
make, and clearly indicating the minimum price that should be
charged for Job 210.
(15 marks)
(b) Explain the implications in using relevant costing to set
prices for future work for this customer.
(6 marks)