Dear,

Please see the pictures as posted, and all of the information are over there. Thanks for your help and if it would be possible, I will give the tips to you.

Thanks a ton for your helps

Karnage Ltd. is a private company owned and operated by husband and wife team Mike and Melissa Karnage. The couple have managed to build the company into a sizeable business, with a turnover approaching 50m, although it lacks a clear mission and they tend to take on opportunities that they see rather than focusing their expertise and competence in a particular area. Recently, Mike and Melissa have argued more about how the organisation should move forward. They cmently have 140 employees working on various projects, with around 60% of their turnover relating to the manufacture of components for the offshore oil industry. This requires the use of expensive plant and machinery costing millions of pounds and needs a skilled workforce to operate it. Melissa is happiest with this element of the business and would like to develop it. Mike on the other hand is still very keen to take on a range of other projects, which span across retail, manufacturing and construction. He argues that the diversification of activity helps to reduce risk and gives them potential new areas of development. Melissa feels that the diversity is a distraction from oil industry component manufacturing that she argues is their core business and should be their main focus for development as it is both their largest activity and the one that has most reliably helped them achieve their required rate of return of 12%. The pair have recently been very busy and disagreements over what should be taken on have increased. They have employed you as a team of consultants to help them decide on the way forward. They have asked you to report on the following: Task 1: A potential short-term project that Mike is very keen to undertake. The details of the project are below: Karnage have been asked to tender for a one-off construction project in Edinburgh. Mike is keen to tender for the project as they have some spare capacity when the project is due to take place. The firm's quantity surveyor has prepared the following data on the material requirements of the project: Material uanti Cost Concrete 2,000 tons 200,000 Bricks 100,000 20,000 Timber 6,000m 12,000 Plasterboard (coated) 1,600 sheets 18,880 All the above costs are based on the current purchase cost of the materials identified by the quantity surveyor from local sources. Karnage's stores manager has supplied some additional information on the materials required for this contract: 1. Concrete must be supplied freshly mixed. Karnage have negotiated a very good deal on concrete our a national supplier at 70/ton. However, they can deliver only 1 10 tons per day meaning that it will have to be diverted from another site currently under construction in Greenock. The site in Greenock is 11 days ahead of schedule and is using the full 110 tons per day of concrete. It is estimated that delays on the Greenock site will cost 1,200 DUIIUIUIU Ll. U11]. (.4. uuuuuut DHPJJLLUI. \"I. h I U! IUII- LLUWUVUI, lllUJ uuu \"UL; Vb]. U111] 1. AU IUIID 1.19]. day meaning that it will have to be diverted from another site currently under construction in Greenock. The site in Greenock is 11 days ahead of schedule and is using the full 110 tons per day of concrete. It is estimated that delays on the Greenock site will cost 1,200 per day. Due to the significant distance between the sites, the concrete can be delivered to only one site on any given day. 1|Page 2. Bricks are a stock item for Karnage and are in constant use. The bricks currently in store are held in store at a weighted average cost of 1 80 per thousand. 3. The timber required for the contract is an unusual size not normally stocked by Karnage, but there are 2,700m of a larger size of timber left over from a contract three years previously that could be sawn by Karnage to make 5,000m of the size required. The work involved will require two men for two days and as they will have to be diverted from other paying work it is estimated that the lost contribution will be 1,900. The timber in store has a book value of 3,700, but the stores manager had been about to dispose of it for 2,900 to another local building rm. 4. The plasterboard required for the contract has a special coating. Instead of buying the pre- coated boards as estimated for by the quantity surveyor, Karnage could apply the coating themselves to the standard boards, which they keep in stock for constant use, with workers that are currently idle. The estimated time involved with the coating of the boards is 200 hours and the workers involved are paid at the rate of 8.45fhour. The cost of the special paint for the whole job would be 3,700 and the standard boards are held in stock at a weighted average cost of 7.55 per board. The replacement cost per standard board is 8.20. Karnage's foreman has added that they expect to have sufcient labour for most of the contract, but that they will have to sub-contract an electrician at an estimated cost of 17,500. Alternatively, they could employ an electrician on a one year contract. This would cost 27,500, but the foreman states that the electrician could also cover another contract the cost of which is 5,500. The foreman suggests that they may have other work for the electrician over the course of the year, but nothing is certain. Additionally, one of Karnage's site supervisors has just resigned. The Foreman has advised that due to the spare capacity they had not intended to seek a replacement in the short-term. He also adds that supervision on the Edinburgh contract is unlikely to be a problem as the other company's other supervisor can cover the project, although this will require payment of an Advice required: Calculate the relevant cost of the contract to Kamage and state the minimum price that they should charge. Your answer should include an opinion on whether or not Kama ge should sub- contract or employ an electrician. This opinion must be justified. Task 2: In recent months the oil industry component market has seen an inux of inexpensive components from manufacturers in the far East. Most of these imports are made by highly automated large volume processes that lead to a generally good standard of finish, although inspection reveals that they are lower in quality than the more individually crafted components made by Kamage. The recent increase in competition has worried Melissa and she has asked the production manager to come up with a plan that will quickly produce a substantial reduction in production costs, before Karnage's margins are squeezed too tight for operations to continue. The Production Manager is quick to point out that the main factor in their costs is their highly skilled labourforce of 64 craftsmen who each earn on average 22,000/year. The competition, he argues, can operate much more cheaply because they have access to far cheaper labour and, due to their level of automation, require much less of it. While there is not much that can be done about the labour rates that Kamage pays to its workforce, due to unionisation, Kamage could, he suggests, significantly reduce its total labour costs by automating as much of its ZIPage production process as possible. Melissa thinks that this is the sensible course of action and asks the production manager to investigate the alternatives. By the end of the week the production manager has, on the basis of information supplied to him by the sales staff of the machinery companies, narrowed it down to two alternative machines, which will alter the production of Kamage as follows: Machine A Machine B Machinery purchase cost 1,570,000 1,720,000 Annual running cost 39,000 43,000 Skilled employees replaced 33 38 EvnnnI-arl 1::a n: man-11:1\": ' trnaI-n Q IlaaI-n A U Machine A Machine B Machinery purchase cost 1,570,000 1,720,000 Annual running cost 39,000 43,000 Skilled employees replaced 33 38 Expected life of machine 6 years 8 years Melissa thinks the information supplied looks a bit simple and decides to do some additional research. She uncovers the following additional information: 1. Both machines will require an overhaul every two years. The estimated cost of this process is 54,000 each time for machine A and 63,000 in years 2 & 6 for machine B, with Machine B requiring a major overhaul in year 4 at a cost of 91,000. No overhaul is expected in the year of disposal. 2. An additional sum of working capital will have to be set aside to keep the machines running efciently and without downtime if either of these projects is adopted. The estimated sums are 47,000 for machine A and 53,000 for machine B. This is recoverable at the end of the project. 3. It is estimated that while neither machine will have a scrap value at the end of its life, there will be a disposal cost of 1 12,000 for machine A and 234,000 for machine B. Advice required: Write a report to Melissa summarising which of the options is better and why, according to the calculations that have been done. In the report you should discuss any other relevant factors that may make you reluctant to base your proposal for the 1ture strategy of Kamage Ltd. on the above model. Task 3: Mike and Melissa are interested in making their company more successful but are not very clear at any point in time how well it is doing. They have heard from friends in the business community that the balanced scorecard is an excellent tool for understanding business performance and are interested to know more. Advice required: Research the main features of the balanced scorecard and report them to Mike and Melissa, discussing its potential usefulness (or otherwise) to Karnage and advising on the way in which it might be implemented. Final task: Present the responses to these tasks in a report and irther comment on how Kamage should move forward in the future. You should recommend support for the approach of either Mike, or Melissa, or perhaps some middle way. In any case your analysis should include reflection on the iture of the companies' activities on the basis of the limited information that you have