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Question 4 AGX Components manufacture and sell specialist engineering parts. A company they have never dealt with before has approached them with a request to supply 300 identical components in the next 6 months. Each component would require the following: Material requirements: - 4kg of material A12 (see Note 1 below) - 6kg of material A7 (see Note 2 below) - One of part P13 (see Note 3 below) - Two of part P17 (see Note 4 below) Note 1 - Material A12 is no longer in use by the AGX. They have 300kg in stock from an earlier contract, which had cost 6 per kg. The current purchase price of A12 is only 4.60kg. AGX could sell their stock of A12 at this price but would have to pay 15% commission on the sale. Note 2 - Material A7 is in regular use by the business. They currently have 1200kg in stock which was bought at 8kg. The price has recently risen to 9.20kg. Note 3 - AGX has 37 of this part in stock. They have no use for it and could not sell it in such small numbers. They can buy P13's for 17 each. Note 4 - AGX does not have any P17's in stock. These cost 23 each. Labour requirements: Each component would require 3 hours of skilled labour and one hour of unskilled labour. AGX pays 13 per hour for skilled labour and 8 per hour for unskilled workers. As they have recently finished a contract, they have workers available but only skilled workers. AGX have a policy of using regular workers where possible, rather than hiring in temporary staff. General overheads: AGX usually allocates overheads on a direct labour hour basis, charging 2.40 per direct labour hour. It is estimated that the increase in overheads resulting from this contract would be 450. Question 4 continues on the next page Question 4 continues on the next page UL23/0068 Page 5 of 8 There are no incremental costs envisaged with relation to machinery. The customer has offered to pay 170 per component. Required: Advise the manager of AGX as to whether the contract is acceptable on financial grounds. Support your advice with relevant calculations and explain the rationale behind each figure used