Advanced: Preparation of pro ject statements for different demand levels and calculations of expected project Seepnnt Lim1ted IS negotiating an initial one year contract wnh an important customer for the supply of a specialized printed colour catalogue at a fixed contract price of £16 per catalogue. Seeprint"s normal capacity for producing such catalogues is 50 000 per annum.

Last year Seeprint Limited earned £11 000 profit per month from a number of small accounts requiring specialized colour catalogues.

If the contract under negotiation is not undertaken, then a simiiaJI"

profit might be obtained from these customers next year, but, if it is undertaken, there will be no profit from such customers.

The estimated costs of producing colour catalogues of a specialized nature are given below.

The costs belo w are considered certain with the exception of the direct materials price

You are required to·

(a) Tabulate the costs and profits per unit and m total and the annual profits. assum1ng that the contract orders 1n the year are: (i) 40000. (ii) 50000 and (iii) 60000 catalogues. at a direct material cost of £4.50 per catalogue. Comment on the tabulation you have prepared (10 marks)

(b) Calculate the expected profit for the year if it is assumed that the probability of the total order is:
0 4 for 40 000 catalogues 0.5 for 50000 catalogues 0.1 for 60 000 catalogues and that the probability of direct material cost is:
0.5 at £4.50 per catalogue 0.3 at £5.00 per catalogue 0.2 at £5.50 per catalogue. (6 marks)

(c) Discuss the implications for Seeprint Umited of the acceptance or otherwise of the contract with the important customer.

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Cost data: Variable costs per catalogue Direct materials Direct wages Direct expenses () 4.50 3.00 1.30 Semi-variable costs Output levels (capacity utilisation) 80% 100% 120% () () () Indirect materials 46 800 47000 74400 Indirect wages 51 200 55000 72000 Indirect expenses 6000 8000 9600 Estimated fixed costs per annum: Depreciation of specialist equipment Supervisory and management salaries 8000 20 000