D runs a ceramics company that employs twenty staff. The employees work a basic 40-hour week for 48 weeks a year, and are paid on an hourly basis. The average wage per hour is K10.42. The fixed costs for the pottery total K30,000 per annum. The company makes tableware and tiles. A set of tableware sells for K50. The costs per set are: Tiles sell for K200 per 100 tiles and the costs per hundred are: The normal sales mix is 600 tiles to 20 sets of tableware. In most years the company works close to normal capacity, but at present the business is operating at 60 percent of capacity. Because of this, D has assigned two members of staff to refurbish the pottery showroom, which should take them 8 weeks to complete. He has also recently agreed to redecorate and tile the changing rooms and surround of the local swimming pool. This is a charitable work and should take three of D's staff half a year to complete. However, D has since been offered two large contracts, which he bid for a few months ago. Fish-and-chip shops contract The first contract is from a company that owns a chain of upmarket fish-and-chip shops. The company needs tiles for five new fish-and-chip shops that it is about to open. D has heard from a reliable source that the company plans to open a further 30 new shops over the next 2 or 3 years. The tiles for the five shops are required in 6 months' time, and each shop will require 20,000 tiles at the normal selling price less 5 per cent. Z plc contract The second potential contract is from a department store, Z plc, which requires 40,000 sets of pastel coloured tableware in one year's time. This may lead to further annual orders from Z plc. D has already produced designs for the product, which the company has agreed; D reckons that this took K2,500 of his time. The price agreed per set is the normal price less 15 per cent quantity discount. If he accepts the contract he will need to have the moulds made, which will cost K15,000. In order to complete this contract a considerable amount of production space is required to store and dry the moulds and to store the completed goods Ready for dispatch in 1 years' time. D owns a warehouse adjacent to the pottery. This warehouse is leased to another business on an annual basis at a rental of K10,000 per annum. Fortunately, the lease is due for renewal this month and D could use the warehouse to complete the large contract for Z plc. He estimates that its use would cost him K3,000 in extra fixed operating costs per annum. Staffing and capacity information D has no difficulty in recruiting staff as required, but he feels that he could not absorb more than eight new employees in the coming year. Recruitment costs are K500 per employee. He also has little difficulty in getting staff to work 6 hours overtime per week at 150 percent of their normal rate of pay. However, they could only work at this level for half of the 48 weeks worked per annum. If D accepted either job he could stop the two members of staff decorating the showroom and hire a contractor, which would cost K5,000. If he brought the three staff back from the work on the swimming pool he would feel obliged to make a donation of K35,000 which would pay for a contractor to finish the work. Twenty-five percent of the pottery's output each year is made up of new one-off orders from small outlets. D feels that, if he wished to do other, more profitable, work, he could stop supplying these customers without long-term detriment to his business. Requirements (a) Produce calculations that show whether the contracts are feasible and profitable. Where appropriate, explain your reasoning and the figures in your calculations. ( 23 marks) (b) Recommend, with reasons, whether D should accept either or both of the contracts