Part A elre plc. manufactures cereal based foods, including various breakfast cereals under private brand tender for the manufacture and suppl pany was approached by Toby plc, a large national supermarket chain, to y of a crunchy-style breakfast cereal made from oats, nuts disns, etc. The tender required Kildare plc to quote prices for a 1.5kg packet at three different weekly volumes; 50 000, 60,000 and 70,000. Kildare plc had, at present, excess capacity on some of its machines and could make a maximum of 80,000 packets of cereals a week. Kildare plc's management accountant is asked to prepare a costing for the Toby tender. The company prepares its tender prices on the basis of full cost plus 15% of cost as a profit margin. The full cost is made up of five elements: raw materials per packet of 0.60; operating wages of 0.24 per packet; manufacturing overheads costed at 200% of operating wages, administration and other corporate overheads at 100% of operating wages; and packaging and transport costing at 0.20 per packet. Th sales manager has suggested that as an incentive to Toby, the profit margin be cut on the 60,000 and 70,000 tenders by 0.5% and 1% to 14.5% and 14% respectively. The manufacturing and administration overheads are forecast as fixed at 12,500 per week, unless output drops to 50,000 units or below per week, when a saving of 1,000 per week can be made. If no contract is undertaken then all the manufacturing and administration overheads will be saved except for 600 per week. If the tender is accepted the volume produced and sold will be determined by the sales achieved by Toby plc. A week before the Toby tender is to be presented for negotiation, Kildare plc receives an enquiry from Crackle plc, a rival supermarket chain, to produce weekly 60,000 packets of a similar type of breakfast cereal of slightly superior quality at a price of 2.6 per 1.5kg packet, the quality and mix of the cereal constituents being laid down by Crackle plc. This product will fill a gap in Crackle plc's private label range of cereals. The estimated variable costs for this contract would be: raw materials 0.80 per packet, operating labour 0.50 per packet and packaging and transport of 0.30 per packet. None of the 80,000 weekly capacity could be used for another product if either of these contracts were taken up You are required to: a) Compute the three selling prices per packet for the Toby tender using Kildare's normal pricing method (10 marks) b) Advise Kildare plc, giving your financial reasons, on the relative merits of the two contracts (4 marks) c) Discuss the merits of full-cost pricing as a method of arriving at selling prices 4 marks)