Julie Bolts Ltd manufactures mechanical bolts for different vehicle engines. The company has been approached to submit a quote for supply of some 3-D Bolts. The company’s inventory and production records show the following:
Materials:
The contract requires 3,500 kg of iron-cast rods material, which is a material used regularly by the company in other production. The company has 2,000 kg of iron-cast rods material currently in stock which had been purchased last month for a total cost of £20,500. Since then, the price per kilogram for iron-cast rods material has increased by 10%.
The contract also requires 500 kg of copper-cast material. There are 250 kg of copper-cast material in stock which are not required for normal production. The material originally cost a total of £3,125. If not used on this contract, the stock of copper-cast material would be sold for £20 per kg.
Labor:
The contract requires 800 hours of factory labor which is paid £10.00 per hour. There is a shortage of workforce and all the available factory labor is fully employed in the company in the manufacture of 3-D Bolts. The following information relates to 3-D Bolts:

Required

1. Prepare calculations showing the total relevant costs for deciding about the contract in respect of the following cost elements:
a. Iron-cast rods material and copper-cast material
b. Factory labor
2. Explain how you would decide which overhead costs would be relevant in the financial appraisal of the contract.

Transcribed Image Text:

Selling price Less: Factory labor (£10 x 4) Other variable costs £ per Unit 40 22 £ per Unit 100 (62) 38