The marketing manager of your organization has given you the responsibility for costing and pricing, a...

  

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The marketing manager of your organization has given you the responsibility for costing and pricing, a one-off order from overseas that he intends to tender for. To develop an accurate costing, you ask the production manager to provide the cost to produce the special order. He provides the following costs: TST 40,000 Material A 80,000 60.000 20,000 Material B Direct Labour Supervision Overheads 120.000 320.000 The production manager also explains that the special order requires machinery that will have no other use to the company after the project has finished. The machinery will have to be purchased at a cost of$100,000. Your organization's lowest markup on it products is 25%. You therefore provide your analysis to the marketing manager recommending a price of $500,000 [Capital expenditure + (cost of production + 25% markup]]. The marketing manager explains to you that the overseas customer is prepared to pay up to a maximum of $300.000 for the order and that a competitor is prepared to accept the order at that price. He asks you to review your analysis. You revisit the production manager and based on your discussion you ascertain the following: (i) Material A is in stock and the above was the cost. There is now no other use for material A, other than the above project, within the factory and it would cost $17,500 to dispose of. Material B would have to be ordered at the cost shown above. (ii) Direct labour costs of $60.000 relate to workers that will be transferred to this project from another project. Extra labour will need to be recruited to the other project at a cost of $70,000. (iii) Supervision costs have been charged to the project on the basis of 33% per cent of labour costs and will be carried out by existing staff within their normal duties. (iv) Overheads have been charged to the project at the rate of 200 per cent on direct labour. (v) The company is currently operating to a point above break-even. (vi) The machinery that will have to be purchased at a cost of$100,000. Can then be disposed of for $52,500 at the end of the project. Required (a) Cost the special order for the marketing manager, clearly stating how you have arrived at your figures and giving reasons for the exclusion of others figures. (8 Marks) (b) Write a brief report to the marketing manager stating whether the organization should go ahead with the tender for the project, the reasons why and the price, bearing in mind that the competitor is prepared to undertake the project for $300,000. (4 Marks) (c) State and explain three non-monetary factors that should be taken into account before tendering for this project. (6 Marks) (d) What would your advice be if you were told that the organization was operating below break-even point? Give reason for your advice. (2 marks) The marketing manager of your organization has given you the responsibility for costing and pricing, a one-off order from overseas that he intends to tender for. To develop an accurate costing, you ask the production manager to provide the cost to produce the special order. He provides the following costs: TST 40,000 Material A 80,000 60.000 20,000 Material B Direct Labour Supervision Overheads 120.000 320.000 The production manager also explains that the special order requires machinery that will have no other use to the company after the project has finished. The machinery will have to be purchased at a cost of$100,000. Your organization's lowest markup on it products is 25%. You therefore provide your analysis to the marketing manager recommending a price of $500,000 [Capital expenditure + (cost of production + 25% markup]]. The marketing manager explains to you that the overseas customer is prepared to pay up to a maximum of $300.000 for the order and that a competitor is prepared to accept the order at that price. He asks you to review your analysis. You revisit the production manager and based on your discussion you ascertain the following: (i) Material A is in stock and the above was the cost. There is now no other use for material A, other than the above project, within the factory and it would cost $17,500 to dispose of. Material B would have to be ordered at the cost shown above. (ii) Direct labour costs of $60.000 relate to workers that will be transferred to this project from another project. Extra labour will need to be recruited to the other project at a cost of $70,000. (iii) Supervision costs have been charged to the project on the basis of 33% per cent of labour costs and will be carried out by existing staff within their normal duties. (iv) Overheads have been charged to the project at the rate of 200 per cent on direct labour. (v) The company is currently operating to a point above break-even. (vi) The machinery that will have to be purchased at a cost of$100,000. Can then be disposed of for $52,500 at the end of the project. Required (a) Cost the special order for the marketing manager, clearly stating how you have arrived at your figures and giving reasons for the exclusion of others figures. (8 Marks) (b) Write a brief report to the marketing manager stating whether the organization should go ahead with the tender for the project, the reasons why and the price, bearing in mind that the competitor is prepared to undertake the project for $300,000. (4 Marks) (c) State and explain three non-monetary factors that should be taken into account before tendering for this project. (6 Marks) (d) What would your advice be if you were told that the organization was operating below break-even point? Give reason for your advice. (2 marks)

Answer rating: 100% (QA)

To compute the cost of any projects with respect to decisions whether it should be accepted or rejected we should always consider only the relevant costs Relevant costs are those costs which will be i... View the full answer