Cooks Ltd produces gaming sets, and its customer base resides within America.

Using the information below answer the following questions:

1. Show full workings of profit or loss incurred if this contract is accepted based on full cost.
2. Showing full workings prepare a revised profit/ loss prediction using relevant costing approach. Give reasons for each valuation in your estimate.
3. Showing full workings find the minimum price the company should accept for this contract. Justify this value.

There has recently been a reduction in demand for Cooks, which has resulted in a large amount of spare capacity in both machinery and labour.

A one-time opportunity has come about to manufacture and sell gaming sets to a retailer in the UK.

The following explains some information about the order:

• comprising of 220 gaming sets including a desk and a gaming chair. These will sell for $3500 each. The gaming sets will take 5 weeks to produce.

• Exporting costs will equal $43,000

• The leather needed for the gaming chairs is already in inventory. It was purchased for a previous job which was cancelled. Original cost = $90,000. Replacement would currently cost $92,000. It is not probable Cooks Ltd will need this material again if this order is not accepted. But the supplier has said they can take back the leather and refund $50,000.

• the wood and hard acrylic glaze coverings used are always in inventory:
  • Wood: each gaming desk requires 3m² and each gaming chair needs 2m² .

Thus, the wood is bought in 3m² and 2m² planks.

• Hard Acrylic Glaze Covering: each gaming desk uses 3m² of acrylic coverings per desk top. These are purchased cut to size with smoothed edges.

	Q in inventory	Original cost $	Cost of replacement $
Wood 3m2	130	70 per plank	83 per plank
Wood 2m2	700	43 per plank	49 per plank
Acrylic Glaze Covering 3m2	200	60 per top	55 per top

• There is 500 hours of supervision required for this order. This cost Cooks $20 per hour and supervisors are salaried.

• Cooks employs 70 workers. None are laid off despite the rough patch. Guaranteed pay for these workers is $15 an hour, irrespective of output. Although these workers usually expect a bonus of 55% on top of their minimum rate. This UK order is expected to use 50 workers, who will work a 45 hour week for 5 weeks.

• A carving machine must be hired to complete this order at $3600 a week with a min charge of 10,000. This cannot be used on any of Cooks other orders.

• Cooks already owns the other machine needed and is used in other projects. The original price of the machine was $550,000. Depreciation of this machine is over 10 years on a straight-line basis. Replacement costs $660,000.

• General overheads, over and above costs detailed above are usually recovered at a rate of 76% on direct labour costs.

• Cooks usually prices contracts on based on full cost.

Please could you outline any formulas you use- thank you :)