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Case - study: SA Steel SA Steel, a steel erector tendered for the erection of the sub structure of a grain silo. This is a
Casestudy: SA Steel
SA Steel, a steel erector tendered for the erection of the sub structure of a grain silo. This is a onceoff contract not expected to be repeated. A summary of the cost estimates used for the purposes of arriving at a tender price is as follows:
R
Direct Materials Steel
Direct Materials Wiring and ancillaries etc.
Direct Labour Engineering: hours @ R per hr
Direct Labour Unskilled: hours @ R per hr
Variable Overheads
Fixed Overheads Absorbed
Total Estimated Cost
SA Steel want to tender at a price of R by adding on a markup of to the above costs. Your opinion is required as to whether the cost estimates on which the tender price was based were correct. You have reviewed the working files and have gathered the following information:
Steel was in stock and cost R It is regularly used and would be replaced at a cost of R
The wiring was already in stock for the previous job that was cancelled. The wiring has no other use.
Engineering hours are in short supply and earn a contribution per hour of R
Unskilled labourers are paid a fixed monthly salary of Requal to an average of R per hour Due to the recent cancellation of an order the company expects to have idle unskilled hours available to work on the job. Any additional unskilled labour required is employed on a casual basis.
Variable overheads accurately represent light and heat costs.
Fixed overheads partly represent an allocation of SA Steels central fixed overheads of R The tender would incur additional fixed costs of R
Question
Calculate the relevant cost of the contract. Please show all calculations and explain any factor that you excluded from the calculation.
Question
Calculate a revised tender price if relevant costing principles were applied, and the same percentage markup was to be added.
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