Promptprint Ltd, a printing business, has received an enquiry from a potential customer for the quotation of a price for a job. The pricing policy of the business is based on the plans for the next financial year shown below.

£

Sales revenue (billings to customers) 196,000 Materials (direct) (38,000)

Labour (direct) (32,000)

Variable overheads (2,400)

Maintenance (3,000)

Depreciation (27,600)

Rent (36,000)

Heat and light (8,000)

Profit 49,000 A first estimate of the direct cost for the particular job is:

£

Direct materials 4,000 Direct labour 3,600 Required:

(a) P repare a recommended price for the job based on the plans, commenting on your method, ignoring the information given in the Appendix (below).

(b) Comment on the validity of using financial plans in pricing and recommend any improvements you would consider desirable for the pricing policy used in (a).

(c) Incorporate the effects of the information shown in the Appendix (below) into your estimates of the direct material cost, explaining any changes you consider it necessary to make to the above direct material cost of £4,000.

Exerci ses 403 Appendix to Exercise 10.4 Based on historic cost, direct material cost was computed as follows:

£

Paper grade 1 1,200 Paper grade 2 2,000 Card (zenith grade) 500 Inks and other miscellaneous items 300 4,000 Paper grade 1 is regularly used by the business. Enough of this paper to complete the job is currently held. Because it is imported, it is estimated that if it is used for this job, a new purchase order will have to be placed shortly. Sterling has depreciated against the foreign currency by 25 per cent since the last purchase.

Paper grade 2 is purchased from the same source as grade 1. The business holds exactly enough of it for the job, but this was bought in for a special order. This order was cancelled, although the defaulting customer was required to pay £500 towards the cost of the paper. The accountant has offset this against the original cost to arrive at the figure of £2,000 shown above.

This paper is rarely used and due to its special chemical coating will be unusable if it is not used on the job in question.

The card is another specialist item currently held by the business. There is no use foreseen and it would cost £750 to replace, if required. However, the inventories controller had planned to spend £130 on overprinting to use the card as a substitute for other materials costing £640.

Inks and other items are in regular use in the print shop.

AppendixLO1