Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A business places substantial emphasis on customer satisfaction and, to this end, delivers its product in special protective containers. These containers have been made in

image text in transcribed

A business places substantial emphasis on customer satisfaction and, to this end, delivers its product in special protective containers. These containers have been made in a department within the business. Management has recently become concerned that this internal supply of containers is very expensive. As a result, outside suppliers have been invited to submit tenders for the provision of these containers. A quote of 250.000 a year has been received for a volume that compares with current internal supply. An investigation into the internal costs of container manufacture has been undertaken and the following emerges: a) The annual cost of material is 120.000, according to the stores records maintained, at actual historic cost. Three-quarters (by cost) of this represents material that is regularly stocked and replenished. The remaining 25 per cent of the material cost is a special foaming chemical that is not used for any other purpose. There are 40 tonnes of this chemical currently held. It was bought in bulk for 750 a tonne. Today's replacement price for this material is 1.050 a tonne but it is unlikely that the business could realise more than 600 a tonne if it had to be disposed of owinng to the high handling costs and special transport facilities required. b) The annual labour cost is 80.000 for this department; however, most are casual employees or recent starters, and so, if an outside quote were accepted, little redundancy would be payable. There are, however, two long-serving employees who would each accept as a salary 15.000 a year until they reached retirement age in two years' time. c) The department manager has a salary of 30.000 a year. The closure of this department would release him to take over another department for which a vacancy is about to be advertised. The salary, status and prospects are similar. d) A rental charge of 9.750 a year, based on floor area, is allocated to the containers department. If the department were closed, the floor space released would be used for wa rehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying 15.750 a year. e) The plant cost 162.000 when it was bought five years ago. Its market value now is 28.000 and it could continue for another two years, at which time its market value would have fallen to zero. (The plant depreciates evenly over time.) f) Annual plant maintenance costs are 9.900 and allocated general administrative costs 33.750 for the coming year. Required: Calculate the annual cost of manufacturing containers for comparison with the quote using relevant figures for establishing the cost or benefit of accepting the quote. Indicate any assumptions or qualifications you wish to make. A business places substantial emphasis on customer satisfaction and, to this end, delivers its product in special protective containers. These containers have been made in a department within the business. Management has recently become concerned that this internal supply of containers is very expensive. As a result, outside suppliers have been invited to submit tenders for the provision of these containers. A quote of 250.000 a year has been received for a volume that compares with current internal supply. An investigation into the internal costs of container manufacture has been undertaken and the following emerges: a) The annual cost of material is 120.000, according to the stores records maintained, at actual historic cost. Three-quarters (by cost) of this represents material that is regularly stocked and replenished. The remaining 25 per cent of the material cost is a special foaming chemical that is not used for any other purpose. There are 40 tonnes of this chemical currently held. It was bought in bulk for 750 a tonne. Today's replacement price for this material is 1.050 a tonne but it is unlikely that the business could realise more than 600 a tonne if it had to be disposed of owinng to the high handling costs and special transport facilities required. b) The annual labour cost is 80.000 for this department; however, most are casual employees or recent starters, and so, if an outside quote were accepted, little redundancy would be payable. There are, however, two long-serving employees who would each accept as a salary 15.000 a year until they reached retirement age in two years' time. c) The department manager has a salary of 30.000 a year. The closure of this department would release him to take over another department for which a vacancy is about to be advertised. The salary, status and prospects are similar. d) A rental charge of 9.750 a year, based on floor area, is allocated to the containers department. If the department were closed, the floor space released would be used for wa rehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying 15.750 a year. e) The plant cost 162.000 when it was bought five years ago. Its market value now is 28.000 and it could continue for another two years, at which time its market value would have fallen to zero. (The plant depreciates evenly over time.) f) Annual plant maintenance costs are 9.900 and allocated general administrative costs 33.750 for the coming year. Required: Calculate the annual cost of manufacturing containers for comparison with the quote using relevant figures for establishing the cost or benefit of accepting the quote. Indicate any assumptions or qualifications you wish to make

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fraud Casebook Lessons From The Bad Side Of Business

Authors: Joseph T. Wells

1st Edition

0470134682, 978-0470134689

More Books

Students also viewed these Accounting questions

Question

Write a Python program to check an input number is prime or not.

Answered: 1 week ago

Question

4-6 Is there a digital divide? If so, why does it matter?

Answered: 1 week ago