Green Industries have been asked to quote for a once off contract. The Production Manager has prepared the following schedule of costs for the contract and is advising that these are the minimum costs Green Industries can use to quote for the business. You have been asked to review the situation.

Costs for special order:

Direct wages 28,500

Supervisor costs 11,500

General overheads 4,000

Machine depreciation 2,300

Machine overheads 18,000

Materials 34,000

Total 98,300

Following your initial enquiries, you have determined the following additional information. Notes:

1. Direct wages comprise the costs wages of two employees, particularly skilled in the labour process for this job, who could be transferred from another department to undertake work on the once off order. They are fully occupied in their usual department and sub-contracting staff would have to be bought-in to undertake the work left behind. Subcontracting costs would be 32,000 for the period of the work. Alternatively Green could hire subcontractors who are skilled in the once off order techniques are their costs would amount to 31,300

2. A supervisor would have to work on the special order. The cost of 11,500 is comprised of 8,000 normal payments plus 3,500 additional bonus for working on the special order. Normal payments refer to the fixed salary of the supervisor. In addition, if he works on the special project , the supervisor would lose incentive payments in his normal work amounting to 2,500. It is not anticipated that any replacement costs relating to the supervisor's work on other jobs would arise.

3. General overheads comprise an apportionment of 3,000 plus an estimate of 1,000 incremental overheads.

4. Machine depreciation represents the normal period cost based on the duration of the contract. It is anticipated that 500 will be incurred in additional machine maintenance costs.

5. Machine overheads (for running costs such as electricity) are charged at 3 per hour. It is estimated that 6000 hours will be needed for the special order. The machine has 4000 hours available capacity. The further 2000 hours required will mean an existing job is taken off the machine resulting in a lost contribution of 2 per hour.

6. Materials in the above costs represent the purchase costs of 7,500 kg bought some time ago. The materials are no longer used and are unlikely to be wanted in the future except on the special order. The complete stock of materials (amounting to 10,000 kg), or part thereof, could be sold for 420 per kg. The replacement cost of material used would be 33,375.

Required: Answer all parts (a), (b) and (c)

(a) revised cost schedule to show the minimum cost that Green Industries can use to quote for the Business. Clearly explain your choices for each cost involved in the project (15 marks)

(b) If Green Industries wish to make a 20% Gross Profit on the contract what should the Quoted selling Price be. (2 marks)

(c) Identify from the information above an example of : (i) A sunk cost; (ii) An opportunity cost; (iii) A committed cost. (iv) A relevant cost.