QUESTION 3 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 GHC4,600 per kitchen. There is already, in stock, enough timber to make and fit 5 kitchens. This stock of timber had originally cost GHC3,280 per kitchen but has since increased in price. Supplementary materials will cost GHC98 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 GHC900 per week for 8 weeks. Two additional unqualified carpenters will be paid GHC410 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 GHC1,100 per week. An administrative staff member who would generate income of GHC240 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 GHC690 per week. Overheads Production overheads are expected to be GHC3,800 for this particular job, 75% of these costs will be fixed. A cutting machine with a net book value of GHC290,000 will be needed. Straight line depreciation of 20% is applied to this machine. A truck that is currently rented out to a customer at GHC515 per week will need to be diverted from this use. This truck has a depreciation charge of GHC1,500 per month in the accounts of Blurred Kitchens Limited. A general overhead of GHC400 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 GHC45,000 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 GHC220 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 GHC18,200. 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 were 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 GHC3,900 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 GHC 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. (9 marks) b) Calculate the total cost and required mark-up of the above job. (2 marks) c) Discuss factors, other than costs, that should also be considered before this job can be accepted. (2 marks) d) Discuss how Blurred Kitchens Limited may reduce the risks involved in the job. (2 marks) (Total 15 marks) QUESTION 3 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 GHC4,600 per kitchen. There is already, in stock, enough timber to make and fit 5 kitchens. This stock of timber had originally cost GHC3,280 per kitchen but has since increased in price. Supplementary materials will cost GHC98 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 GHC900 per week for 8 weeks. Two additional unqualified carpenters will be paid GHC410 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 GHC1,100 per week. An administrative staff member who would generate income of GHC240 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 GHC690 per week. Overheads Production overheads are expected to be GHC3,800 for this particular job, 75% of these costs will be fixed. A cutting machine with a net book value of GHC290,000 will be needed. Straight line depreciation of 20% is applied to this machine. A truck that is currently rented out to a customer at GHC515 per week will need to be diverted from this use. This truck has a depreciation charge of GHC1,500 per month in the accounts of Blurred Kitchens Limited. A general overhead of GHC400 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 GHC45,000 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 GHC220 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 GHC18,200. 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 were 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 GHC3,900 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 GHC 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. (9 marks) b) Calculate the total cost and required mark-up of the above job. (2 marks) c) Discuss factors, other than costs, that should also be considered before this job can be accepted. (2 marks) d) Discuss how Blurred Kitchens Limited may reduce the risks involved in the job. (2 marks) (Total 15 marks)