Baldwin Limited is involved in supply and maintenance of office equipment. One of its activities is the sale of copiers. It offers a follow-up service to companies that wish to upgrade their copiers to give a wider range and speed of output. The work needed to upgrade copiers is carried out at customers' premises. The upgrade involves the same work for most copiers and therefore a standard price is used, as follows. Copier upgrade-standard price Components 43 75 Labour involved in travel to customers: 12 0,5 hour at 24 per hour Labour: 2 hours at 24 per hour Overhead: 200% of labour cost Total cost Profit mark-up at 20% on cost Standard price 120 255 51 306 A customer has asked Baldwin to quote for a special upgrading for 100 copiers at their offices. Using the standard price gave a total quote of 30.600 which was rejected by the customer. The customer's response was that a price of 15,000 was what they had in mind. Baldwin is in the process of changing to a different copier manufacturer. As this is probably the last major upgrade of the old manufacturer's copiers the sales director of Baldwin is keen to accept the order and recommends that a break-even price be calculated in order to provide information for further negotiation. The following information has been obtained: (1) The standard upgrade requires three components D. Y and 2) with a total cost of 75. Component X has a standard cost of 22 and will not be used when the change of manufacturer occurs. There is no alternative use for this component and it has no realizable value. Baldwin has 200 of these in stock. Components Y and Z will be compatible with the new manufacturer's copier. The special nature of the upgrade required by the customer requires a further component, W, which will have to be ordered from the current manufacturer at 34 per upgrade. (2) The estimated total labour time travelling to the customer for the upgrade of all of the copiers is 10 hours (3) The repetitive nature of the work means that the labour time for upgrading each copier would be only 1,5 hours. The operations manager has suggested that 25% of the work could be carried out by trainees who are charged at half the hourly rare of qualified engineers. (4) The type of copier in question requires use of a special machine during upgrade. This will not be needed for the copiers from she new manufacturer. An offer to buy the machine for 800 has been received from another company; however they require immediate delivery or will not buy the machine. (5) Overheads are all fixed. Name Required: HOME ASSIGNMENT #13 Group Prepare a brief report for she sales director of Baldwin Ltd which includes a calculation of the break- even price for its special job and an explanation of the figures used. Comment on the factors which the sales director should consider when deciding on the price to quote for the special job. Baldwin Limited is involved in supply and maintenance of office equipment. One of its activities is the sale of copiers. It offers a follow-up service to companies that wish to upgrade their copiers to give a wider range and speed of output. The work needed to upgrade copiers is carried out at customers' premises. The upgrade involves the same work for most copiers and therefore a standard price is used, as follows. Copier upgrade-standard price Components Labour involved in travel to customers: 0,5 hour at 24 per hour Labour: 2 hours at 24 per hour Overhead: 200% of labour cost Total cost Profit mark-up at 20% on cost Standard price E 75 12 48 120 255 51 306 A customer has asked Baldwin to quote for a special upgrading for 100 copiers at their offices. Using the standard price gave a total quote of 30.600 which was rejected by the customer. The customer's response was that a price of 15,000 was what they had in mind. Baldwin is in the process of changing to a different copier manufacturer. As this is probably the last major upgrade of the old manufacturer's copiers the sales director of Baldwin is keen to accept the order and recommends that a break-even price be calculated in order to provide information for further negotiation. The following information has been obtained: (1) The standard upgrade requires three components (X. Y and 2) with a total cost of 75. Component X has a standard cost of 22 and will not be used when the change of manufacturer occurs. There is no alternative use for this component and it has no realizable value. Baldwin has 200 of these in stock. Components Y and Z will be compatible with the new manufacturer's copier. The special nature of the upgrade required by the customer requires a further component, W, which will have to be ordered from the current manufacturer at 34 per upgrade. (2) The estimated total labour time travelling to the customer for the upgrade of all of the copiers is 10 hours (3) The repetitive nature of the work means that the labour time for upgrading each copier would be only 1,5 hours. The operations manager has suggested that 25% of the work could be carried out by trainees who are charged at half the hourly rare of qualified engineers. (4) The type of copier in question requires use of a special machine during upgrade. This will not be needed for the copiers from she new manufacturer. An offer to buy the machine for 800 has been received from another company, however they require immediate delivery or will not buy the machine. (5) Overheads are all fixed. Name Required: HOME ASSIGNMENT #13 Group Prepare a brief report for she sales director of Baldwin Ltd which includes a calculation of the break- even price for its special job and an explanation of the figures used. Comment on the factors which the sales director should consider when deciding on the price to quote for the special job. Solution: