Bamboo Limited is a highly specialist firm of central heating suppliers operating exclusively in the textiles industry.
Question:
Bamboo Limited is a highly specialist firm of central heating suppliers operating exclusively in the textiles industry. It has recently been asked to tender for a contract for a prospective customer. The following details relate to the proposed contract.
1. Materials:
£20,000 of materials would need to be purchased.
£10,000 of materials would need to be transferred from another contract (these materials would need to be replaced).
Some obsolete stock would be used. The stock had originally cost £18,000. Its current disposable value is £4000.
2. The contract would involve labour costs of £60,000, of which £30,000 would be incurred regardless of whether the contract was undertaken.
3. The production manager will have to work several evenings a week during the progress of the contract. He is paid a salary of £30,000 per year, and on successful completion of the contract he would receive a bonus of £5000.
4. Additional administrative expenses incurred in undertaking the contract are estimated to be £1000.
5. The company absorbs its fixed overheads at a rate of £10 per machine hour. The contract will require 2000 machine hours.
Required:
Calculate the minimum contract price that would be acceptable to Bamboo Limited.
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