Supplier Ltd has quoted a contract price of 168,000 per annum for the manufacture of Echad, to Buyer Ltd. Buyer Ltd is considering whether to accept or reject the contract bid. There is spare plant available for the manufacture of Echad if Buyer Ltd were to go ahead with its production. The associated costs with manufacturing the product in-house, are as follows. (1) The actual historic annual cost of material to be used for Echad is 120,000. 75% of this cost represents material that is regularly stocked and replenished by Buyer Ltd. The remaining material cost represents a special chemical which is only used by the business for the purpose of producing Echad. There are 40 tonnes of this chemical in stock, a quantity that is sufficient for Echad's requirement for one year. It was bought in bulk for 750 per tonne. The current replacement cost for this special chemical is 1,050 per tonne. Buyer Ltd can realise 600 per tonne for the material if the company decides to dispose of it. (2) The annual labour cost of full time employees is 80,000 for Echad's production department. With the exception of two full time employees who are each paid a fixed salary of 15,000 per year, the labour cost relates to recent joiners or casual staff. The cost of redundancy for full time employees is 20,000 per year, per person. (3) A rental charge of 9,750 a year based on the floor area is apportioned to the Echad production department. If the department were closed, the floor space released would be used for warehousing and as a result, the business would give up the tenancy of an existing warehouse for which it is paying 15,750 a year. (4) Annual maintenance costs of the plant where Echad has to be produced are 9,900, and apportioned general office and administrative costs amount to 33,750 for the forthcoming year. REQUIRED: (a) Calculate the relevant annual cost of manufacturing Echad, for Buyer Ltd's decision making purpose. [8 marks] (b) Recommend whether the quote from Supplier Ltd should be accepted or rejected on purely financial grounds. Identify one factor, other than financial, that Buyer Ltd must consider before making the decision. [2 marks] [Word limit : 75 words] Supplier Ltd has quoted a contract price of 168,000 per annum for the manufacture of Echad, to Buyer Ltd. Buyer Ltd is considering whether to accept or reject the contract bid. There is spare plant available for the manufacture of Echad if Buyer Ltd were to go ahead with its production. The associated costs with manufacturing the product in-house, are as follows. (1) The actual historic annual cost of material to be used for Echad is 120,000. 75% of this cost represents material that is regularly stocked and replenished by Buyer Ltd. The remaining material cost represents a special chemical which is only used by the business for the purpose of producing Echad. There are 40 tonnes of this chemical in stock, a quantity that is sufficient for Echad's requirement for one year. It was bought in bulk for 750 per tonne. The current replacement cost for this special chemical is 1,050 per tonne. Buyer Ltd can realise 600 per tonne for the material if the company decides to dispose of it. (2) The annual labour cost of full time employees is 80,000 for Echad's production department. With the exception of two full time employees who are each paid a fixed salary of 15,000 per year, the labour cost relates to recent joiners or casual staff. The cost of redundancy for full time employees is 20,000 per year, per person. (3) A rental charge of 9,750 a year based on the floor area is apportioned to the Echad production department. If the department were closed, the floor space released would be used for warehousing and as a result, the business would give up the tenancy of an existing warehouse for which it is paying 15,750 a year. (4) Annual maintenance costs of the plant where Echad has to be produced are 9,900, and apportioned general office and administrative costs amount to 33,750 for the forthcoming year. REQUIRED: (a) Calculate the relevant annual cost of manufacturing Echad, for Buyer Ltd's decision making purpose. [8 marks] (b) Recommend whether the quote from Supplier Ltd should be accepted or rejected on purely financial grounds. Identify one factor, other than financial, that Buyer Ltd must consider before making the decision. [2 marks] [Word limit : 75 words]