15.5# British Foam Group (BFG) Ltd makes and sells packaging solutions products. The material cost is £15 per packaging solution which requires 112 hours of skilled labour at £10 per hour.

BFG Ltd has no variable overheads but has fixed overheads of £10,000 per month, each packaging solution sells for £42, and there is a heavy demand on the product throughout the year.

A one-off contract has been offered to BFG Ltd to supply a different packaging solution as compared to its standard product.

(a) The labour time for the one-off contract would be 110 hours.

(b) The material cost would be £700 plus the cost of additional special components

(c) The special components could be purchased from an outside supplier for £180 or could be made by BFG Ltd for a material cost of £110 and labour time of four hours.

You are required to give BFG Ltd advice on:

(i) Whether the special component should be manufactured by BFG Ltd or purchased from the outside supplier

(ii) Whether BFG Ltd should accept the one-off contract

(iii) How much should be charged to the client to enable BFG Ltd to make a 30% mark-up on the cost of the one-off contract.