Cable ble pri tio C Decision Making Questions Question 1 Wind Turbines Ltd manufactures a range of 4 types of wind turbine that generates. electricity utilising wind power. They have received a request from a new client who wishes to export a variation of one of their models. The 'one off contract offers to pay 30,000 per turbine and requires the manufacture of 25 turbines. Wind Turbines Ltd would require 12 months to produce these. You have obtained the following information regarding the costing of the contract: Blade sizes (Type A or B) Construction material Metal components Other variable costs Depreciation Rent Production teams wages 90,000 88,000 85,000 36,000 66,000 95,000 250,000 Managers salaries 75,000 Overheads 80,000 Supervisors wages 55,000 Administration expenses 29,000 949,000 The management accountant has reviewed the information and handed you the following report: You currently hold in stock two sizes of blades A & B that could be used in this contract. The client does not have any preference. They are valued at the price they were purchased for; however the current values are now for type A blades 12,500 more and for type B blades 10,000 more. The construction material for this contract is also in stock, however you are about to sell it to another company as you no longer use this particular material in your manufacturing process. The company offered to pay 25,000 for it. To complete the contract you will require an additional stock of metal currently valued at an additional 11000 above its original purchase price Other variable costs are valued at the current value No new machinery will be required to complete the contract as it has the capacity to cope, with the depreciation rates being set yearly for the machines. The rental contract on the warehouse is not due to renew for 2 more years. Direct Materiale Direct inal budget for 2018 Product 10% For the production team to meet the deadline they will need to be paid overtime at the rate of 1 normal rates. The managers are on salaries. No additional overheads will be incurred due to acceptance of the new contract The costing provided highlights that the supervisors are paid a fixed salary. However, they are also paid a half yearly bonus which is related to the number of contracts they supervise. If this contract is accepted it will we be worth a bonus of 5,000 in 6 months with a further 2,500 at the end of 12 months. The acceptance of this contract would increase the burden placed upon the administration of the company and therefore consideration must be given to employing 2 part time members of staff. The cost is 1,000 per month per part time employee. They would be given a 1-year fixed term contract of which 85% of the time would be spent on the new contract, with the balance in administering existing contracts. Required: a) From the information provided to you calculate and thus determine whether Wind Turbines Ltd should go ahead with the contract. b) Using examples from your answer to (a) explain the following terms: (12 marks) i. Relevant cost ii. Sunk costs iii. Opportunity costs iv. Incremental costs (6 marks)