REQUIREMENT:On the basis of finanacial information provided above, calaculate the lowest quoatation that promo trees ltd can offer fpr the contract without incurr a loss.
UUED I IUI'I I Promo Tees Ltd specialises in manufacturing good quality pure cotton t-shirts that are sold to two top retailers. The company has recently been approached by a conference organiser to provide a quotation for the supply of 5,000 t-shirts over the next three momhs. As Promo Tees Ltd is currently working at 80% of its full production capacity it is seriously considering undertaking this short term contract to boost its profits. The following information is available: 1. The conference organiser requires the t-shirts to be in equal quantities of black and white cotton. Tofulfill the contract 2.000 metres of white cotton fabric and 2.000 metres of black cotton fabric is required. 2. Currently. Promo Tees Ltd only manufactures white t-shirts and has plenty of fabric available which was purchased in bulk six months ago at 2.25 per metre. The current price of this cotton fabric is 2.40. 3. The company does not have any black cotton fabric in stock. However. It could buy some from an existing supplier for 2.60 per metre but must purchase a minimum of 2,500 metres. At present the company has no use for any unused black cotton fabric. 4. When manufacturing t-shirts. only white thread may be used to make white t-shirts and only black thread may be used to make black t-shirts. 5. For each 1,000 t-shirts produced, 200 reels of cotton thread would be required. At present there are 2.000 reels of white cotton thread in stock which originally cost 1,800 in total some months ago. The purchase price has not increased since that time. 5. As the company does not have any black cotton thread in stock it will have to purchase some and has been quoted a price of 1.10 per reel. A regular supplier has offered Promo Tees Ltd an end of batch box of 1,000 reels of black cotton thread at a discount price of 450. If the black thread is not used for this contract it cannot be used for producing any other products. 7. To meet the labour requirements of the contract some skilled and unskilled workers are required. The cost for skilled staff to work on the contract amounts to 9,250. The factory foreman has stated that it would be feasible for the existing skilled staff to work on the contract as there is sufficient idle time. Additional unskilled staff will have to be employed on a casual basis, as required, to work on the contract at a cost of 15,000 in total. 8. Machinery not needed in the current production set up could be used for this contract. However, Promo Tees Ltd has been offered 5,000 to use it for the next three months by another clothing manufacturer. 9. Depreciation on the machinery. noted at a above. amounts to 24.000 per annum. 10. The fixed production overhead applicable to the contract is 5,250. This has been calculated using an overhead absorption rate of 1.05 per t-shirt. 11. The conference organiser requires a logo to be applied to each t-shirt. The logos cost 0.25 each and the company would have to purchase these, in advance, from a specific supplier. If the logos are not used on the contract they can be returned to the supplier for a full refund. DEF\" IIBEIIEII'I
