Question $1$

A friend of yours owns a kitchen manufacturing business in Limerick City called Blurred Kitchens Limited. The business employs twenty$-$six people and these comprise fully qualified carpenters, trainee carpenters, sales staff, delivery staff and administration staff. Your friend has recently received a job proposal from a large developer in Donegal to manufacture and fit kitchens for $25$ houses in a housing estate in Donegal Town. The work will take eight weeks to fully complete. He has made out the following financial details for you to study and has asked you to write a formal consultancy report for which you will be financially rewarded.

Raw materials

The chief raw material that Blurred Kitchens Limited uses in all its kitchens is an Indonesian timber. This timber will cost GHS $4,600$ per kitchen. There is already, in stock, enough timber to make and fit $5$ kitchens. This stock of timber had originally cost GHS $3,280$ per kitchen but has since increased in price. Supplementary materials will cost GHS $98$ per kitchen. There is sufficient stock of supplementary materials to be able to complete this job.

Labour

Three extra workers will need to be employed if this job goes ahead. One additional qualified carpenter will be paid GHS $900$ per week for $8$ weeks. Two additional unqualified carpenters will be paid GHS $410$ each, per week, for $8$ weeks. A supervisor carpenter, currently employed full$-$time,

will need to spend $4$ weeks supervising this job. He is currently paid GHS$1,100$ per week. An administrative staff member who would generate income of GHS $240$ per kitchen for the business by selling add$-$on products such as microwaves, will now have to be employed for $6$ weeks on this particular job, and will not be able to perform his usual sales duties for the duration of the job. This staff member is currently a full$-$time employee and is paid a salary of GHS $690$ per week.

Overheads

Production overheads are expected to be GHS $3,800$ for this particular job, $75\%$ of these costs will be fixed. A cutting machine with a net book value of GHS $290,000$ will be needed. Straight line depreciation of $20\%$ is applied to this machine. A truck that is currently rented out to a customer at GHS $515$ per week will need to be diverted from this use. This truck has a depreciation charge of GHS $1,500$ per month in the accounts of Blurred Kitchens Limited. A general overhead of GHS $400$ per week is charged through the accounts of Blurred Kitchens Limited and will apply whether this particular job goes ahead or not.

Accounts department

The accounts department employs two staff. These are both paid GHS $45,000$ per annum. This cost is treated as a fixed cost. One of the staff will need to work overtime for the entire length of the job. This overtime is usually GHS $220$ per staff member per week.

Advertising

An advertising campaign carried out by Blurred Kitchens Limited at the beginning of the current financial year, which may have sparked this interest from Donegal, has already cost GHS $18,200.$ Only $50\%$ of this has been paid so far and the remainder will not be paid until the end of the year.

Kitchen design

In order to impress the Donegal customer, the design of these particular kitchens is made by a graphic design firm in Ennis earlier in the year. These designs were more expensive than the more usual in $$house designs. The costs for these designs came to GHS $3,900$ in total and they will not be used for any other job.

Accommodation

Due to travelling a long distance for this particular job accommodation will be necessary. It is estimated that $8$ employees will need to spend $42$ nights each in a local hotel at a cost of GHS $48$ per night each.

Payment

The developer has agreed to pay $25\%$ of the job proposal in advance and the remainder will be paid $6$ months after completion.

Mark up on total costs

A mark up of $150\%$ on full costs is required on all jobs.

Required:

a$.$

Prepare a detailed report for Blurred Kitchens Limited, clearly explaining the basis for inclusion and exclusion of each element of costs for this job.

b$.$

Calculate the total cost and required mark$-$up of the above job.

c$.$

Discuss factors, other than costs, that should also be considered before this job can be accepted.