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B3- Mustafa Mustafa has already prepared the tender below for a special contract and has asked you to review it for him. He would like
B3- Mustafa Mustafa has already prepared the tender below for a special contract and has asked you to review it for him. He would like you to quote the minimum price as he believes this will lead to more lucrative work in the future. 123 45678 Labour Skilled Labour 1050 40 42,000 Semi-Skilled Labour 1700 30 51,000 Unskilled 300 12 3,600 Materials Material X 1500 27 40,500 Material Y 1700 15 25,500 Material Z 75 18 1,350 Material W 300 45 13,500 Fixed Overheads 1800 16 28,800 Costs of Preparing the Tender Mustafa's Time 3,000 Total Cost 209,250 Minimum Profit (10% of Total Costs) Minimum Tender Price 6 110 20,925 230,175 Notes: (1) Skilled Labour Skilled labour is only hired as required at a rate of 40 per hour. (2) Semi-Skilled Labour Mustafa employs 29 semi-skilled labourers on annual contracts. Currently they are not fully utilised and there are 1,200 hours available for this project. Any hours in excess of this will have to be paid for at a time-and-three quarters. (3) Unskilled Labour Unskilled labourers are paid 12 per hour and are currently fully employed on jobs that gen- erate a contribution of 5 per unskilled labour hour. However additional labour hour could be hired at a cost of 15 per hour. (4) Material X This material is in continuous use by Mustafa in his business and there is plenty of it available in stock at a book value of 22 per Kg but it is known that the current purchase price per Kg is 27 per kg. (5) Material Y The current purchase price of this material is 15 per kg and there are 850 kgs of this material in stock that were purchased earlier for 12 per kg. Mustafa has no alternative use for the 850 kgs of the material available and therefore was planning to sell it for 5 per kg. However, to be able to sell it Mustafa would have to pay a fixed sum of 120 to cover the delivery costs. (6) Material Z The current purchase price of this material is 18 per kg. Mustafa has 130 kgs of this material in stock and due to its hazardous nature, if it is not used in this contract it will have to be disposed of at a cost of 35 per kg. (7) Material W The current purchase price for this material is 45 per kg and there are 300 kgs in stock that were purchased a while ago for 30 per kg for another one-off contract that never happened. Mustafa could sell it for 25 per kg or use it as a substitute for another material that is in constant use and save the business 9,000 of the other material. (8) Fixed Overheads This is considered to be an accurate estimate of the hourly rate based on Mustafa's existing production. (9) Costs of Preparing the tender Mustafa has spent 30 hours working on this project at 100 per hour, which he believes is his charge-out rate. (10) Profit This is Mustafa's minimum profit margin which he believes is necessary to cover general day-to-day expenses of running his business. Required: 1. Prepare a revised cost estimate in table form using a relevant cash flow approach, showing clearly the minimum price that Mustafa should quote. Give brief and clear explanations for the treatment of each item in your cost estimate. (10 marks) TOTAL 10 MARKS
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