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  • In April 20xx, Rubink Ltd was asked to tender a contract to supply 1000 units of product X, a product they had sold for £145/unit. However, that was over two years ago. Since then, they have not made product X. To do so, would require the following resources:·1000kg of material A·3000kg of material B·2000 hours of unskilled labour·2000 hours of skilled labour·Use of a particular machinery·Appropriate supervision On investigation, the following was noted.
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  • 1.1,000kg of material A was purchased over two years ago for £2,500. It would now cost £5,000 but is no longer used by Rubink Ltd. Indeed, two months ago, they were told it would cost £500 to dispose of because of its toxicity.
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  • 2. 1,000 kg of material B is in stock, and was purchased a week ago for £6,000. It is used regularly for other products, and the purchase price does fluctuate. The expected variation is +/-10% from the average price of £6/kg.
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  • 3. The unskilled labour could be provided without further recruitment but this would involve 2,000 hours of overtime, at ‘time and a half. Alternatively, temporary staff could be employed at the same rate of £5/hour, but due to inexperience, they would be half as productive.
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  • 4. There is a problem of a shortage of skilled labour. Two new staff would be needed, at a cost of £30,000/annum. They would have to be hired on a one-year contract, but would only be needed on the product X project for six months.
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  • 5. The first machine needed for project X cost £100,000 and its WDV is £15,000. It could be sold next week for £20,000. If it is kept for another six months, its WDV will £10,000, and it will probably be sold for could be sold for £8,000.
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  • 6. The second machine is already used in the factory. If this one is used, a replacement would need to be hired for six months at a cost of £13,000. Alternatively, they could hire a machine specifically for project X at a cost of £15,000.
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  • 7. The ten supervisors already in the factory will spend approximately 15% of their time supervising this project. Their annual salary is £25,000.
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  • 8. The overhead cost for the space used by project X in the factory is £52,250.
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  • 9. The tender process has so far cost £5,500 (marketing and legal costs). The Managing Director (MD) of Rubink Ltd would like to win the contract, but also wants to earn a margin of cost-plus forty per cent on products. Other suppliers are offering product X for prices in the range of £145 to £160.
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  • REQUIRED: (a). Evaluate the possible costs of project X, explaining all the relevant assumptions you make. 17 marks 
  • (b). Describe some of the factors which need to be taken into account by Rubink Ltd before deciding on accepting or rejecting the contract. 
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