The owners have been approached a number of times over the last 12 months by companies asking them to tender for large one off contracts all of which the company has failed to win. The contracts would be over and above the activities reflected in the plans in scenarios 1 and 2 below, the plans are based on the assumption that vans operate at 75% capacity and therefore there is scope to undertake these contracts. The owners believe that the issue is the way that they are pricing the contracts. The contracts are currently costed using full costing and prices are based on a cost-plus model. The owners are thinking of moving to marginal costing but they are unsure of exactly what this would entail. The owners have asked for your advice as to the advantages and disadvantages of using a marginal costing model for pricing these contracts when compared to their current approach. Appendix one: On Time Deliveries Ltd, Financial Projection for 2022 Profit per Van Scenario 1 Scenario 2 Full Year Forecast Scenario 1 Scenario 2 Assumptions 20 Vans are on short term rent, drivers are on zero rate contracts E Assumes 20 Vans are purchased and 22 drivers on permanent full time contracts f E Each van operates 52 weeks a year, 5 days a week and makes 30 deliveries a day. This assumes that the vans are running at 75% of their capacity, Sales 52,260 52,260 1.045,200 1,045,200 Less costs Fuel Driver 15,600 22,750 15,600 20,000 312,000 455,000 312,000 440,000 Van Costs Includes insurance, depreciation or rental costs and maintenance 5,000 4,000 100,000 80,000 8,910 12,660 178.200 213,200 Other Costs Office statt Owners salary Insurance Office Rent Other 40,000 80,000 3,000 15,000 3,000 40.000 80,000 3,000 15,000 3,000 Profit 72,200 The owners have been approached a number of times over the last 12 months by companies asking them to tender for large one off contracts all of which the company has failed to win. The contracts would be over and above the activities reflected in the plans in scenarios 1 and 2 below, the plans are based on the assumption that vans operate at 75% capacity and therefore there is scope to undertake these contracts. The owners believe that the issue is the way that they are pricing the contracts. The contracts are currently costed using full costing and prices are based on a cost-plus model. The owners are thinking of moving to marginal costing but they are unsure of exactly what this would entail. The owners have asked for your advice as to the advantages and disadvantages of using a marginal costing model for pricing these contracts when compared to their current approach. Appendix one: On Time Deliveries Ltd, Financial Projection for 2022 Profit per Van Scenario 1 Scenario 2 Full Year Forecast Scenario 1 Scenario 2 Assumptions 20 Vans are on short term rent, drivers are on zero rate contracts E Assumes 20 Vans are purchased and 22 drivers on permanent full time contracts f E Each van operates 52 weeks a year, 5 days a week and makes 30 deliveries a day. This assumes that the vans are running at 75% of their capacity, Sales 52,260 52,260 1.045,200 1,045,200 Less costs Fuel Driver 15,600 22,750 15,600 20,000 312,000 455,000 312,000 440,000 Van Costs Includes insurance, depreciation or rental costs and maintenance 5,000 4,000 100,000 80,000 8,910 12,660 178.200 213,200 Other Costs Office statt Owners salary Insurance Office Rent Other 40,000 80,000 3,000 15,000 3,000 40.000 80,000 3,000 15,000 3,000 Profit 72,200