Required :

Indicate the minimum price at which the contract could be undertaken, such that the business would be neither better nor worse off as a result of doing.Full explanation including formulas,remarks etc..

Andrea and Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres of an electrical cable in which the business specialises. The estimating department of the business has produced the following information relating to the contract: Materials The cable will require a steel core, which the business buys in. The steel core is to be coated with a special plastic, also bought in, using a special process. Plastic for the covering will be required at the rate of 0.10kg/metre of completed cable. Direct labour Skilled: 10 mins/metre; Unskilled: 5 mins/metre. The business already holds sufficient of each of the materials required to complete the contract. Information on the cost of the stocks is as follows: Steel core Plastic Rs/metre Rs/kg Historic cost 75 30 Current buying-in-cost 105 35 Scrap value 70 5 The steel core is in current use by the business for a variety of work that it regularly undertakes. The plastic is a surplus from a previous contract where a mistake was made and an excess quantity ordered. If the current contract does not go ahead, this plastic will be scrapped. Unskilled labour, which is paid at the rate of Rs 375 an hour, will need to be taken on specifically for the contract. The business is fairly quiet at the moment which means that a pool of skilled labour exists that will still be employed at full pay of Rs 600 an hour to do nothing if the contract does not proceed. The pool of skilled labour is sufficient to complete the contract. Andrea and Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres of an electrical cable in which the business specialises. The estimating department of the business has produced the following information relating to the contract: Materials The cable will require a steel core, which the business buys in. The steel core is to be coated with a special plastic, also bought in, using a special process. Plastic for the covering will be required at the rate of 0.10kg/metre of completed cable. Direct labour Skilled: 10 mins/metre; Unskilled: 5 mins/metre. The business already holds sufficient of each of the materials required to complete the contract. Information on the cost of the stocks is as follows: Steel core Plastic Rs/metre Rs/kg Historic cost 75 30 Current buying-in-cost 105 35 Scrap value 70 5 The steel core is in current use by the business for a variety of work that it regularly undertakes. The plastic is a surplus from a previous contract where a mistake was made and an excess quantity ordered. If the current contract does not go ahead, this plastic will be scrapped. Unskilled labour, which is paid at the rate of Rs 375 an hour, will need to be taken on specifically for the contract. The business is fairly quiet at the moment which means that a pool of skilled labour exists that will still be employed at full pay of Rs 600 an hour to do nothing if the contract does not proceed. The pool of skilled labour is sufficient to complete the contract