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question 1a, b, c

TASK 2 (past exam question) Sturridge Electricals Lid has just received an order for 160 electrical units which it makes in its York factory. Each electrical unit for this customer comprises: 3 metres plastic casing 1.25 metres steel cable 0.25 metres copper wire 0.75 square metres insulating materials 2 switches 12 minutes of skilled worker time 6 minutes semi-skilled worker time 3 minutes of unskilled worker time In addition, the following information is available for next year. E Rent 64,000 Insurance 8,500 Depreciation 7,600 General maintenance 6,400 Salaries 18,000 Other indirect overheads 9,500 Direct Labour Hours 12000 hours Machine Hours 6000 Further information 1. The plastic casing was originally bought for $2.20 and is frequently used in other processes. The current price is $3 per metre though it could be sold for $1.40 if necessary. The company has 700 metres in its warehouse. 2. The steel cable was bought 2 years ago for $3.60 per metre as part of a large contract however it is not used anymore and has been lying in the warehouse. The current market value is $3.70 thought it could be scrapped for $2 per metre. There is 100 metres in inventory. 3. The copper wire is also no longer needed and there is exactly enough in stock to do the contract. It was bought in a couple of weeks ago for $1.20 per metre though the current market price is $1.30 per metre. The only alternative if it is not used is to scrap it for $1.50 a metre or use it as a substitute for another material X which is currently bought in for $5 per metre. It would however need modifications, and these would total E1.20 per metre. 4. There is 60 square metres of insulating material in stock. These contain tiny particles of a potentially harmful substance and if not used will have to be disposed of for $250. The current purchase price of this material is E3.70 per square metre however the material was bought at $3.60 per square metre. 5. Switches will have to be purchased at $0.45 per unit, there are none in stock. 6. Skilled workers are contracted and at present working to full capacity on another contract where they are charged out to customers at $30 per hour. The hourly rate however is $15 per hour. Management are unsure as to whether they should move their current staff or use agency staff for this job at $18 per hour) 7. Semi-skilled workers are currently awaiting new orders. They too are contracted and their hourly cost equates to $10 per hour. 8. Unskilled workers are paid $7 per hour and can be easily obtained and employed. 9. The companies ROCE is required to be 20%.2a. Using a job costing approach (Tradition Absorption Costing) calculate the full cost of the order showing the quantities required in the order along with the prime cost and hence full cost and price to the customer. (20 marks) 2b. What is the minimum price that the company could price this order so that they did not make a profit or a loss? (14 marks) 2c. Suggest reasons for why a company may decide to fulfil an order at the minimum price (2b)