The Reinforce Group has fourteen operating subsidiaries. All the operating subsidiaries, including manufacturing facilities, are located in the UK. The board of directors of the group is currently evaluating a range of proposals submitted by some of its subsidiaries and has employed you, as consultants, to provide recommendations. The details of the proposals for which your expertise is sought are as follows: Defution Ltd Defution Ltd has been invited to submit a tender for a one-off batch of 5,000 special purpose containers by a premium freight company, Speedo Ltd. The containers need to be sturdy to prevent damage to transported goods and should be as light as possible to reduce transportation cost. Speedo Ltd has requested that the containers be produced in an environmentally friendly manner as they are committed to reducing their carbon footprint. The requested containers are similar to some of the products regularly manufactured by Defution Ltd. The estimated cost of the required batch of containers using the company's standard costs is as follows: Material Alfonso 12,000 kg at 27 per kg 324,000 Material Becker 3,000 kg at 46 per kg 138,000 Direct labour 2 hours per container at 11 per hour 110,000 Variable overheads 15,000 hours at 3 per hour 45,000 Fixed overheads 15,000 hours at 25 per hour 375,000 Total standard cost 992,000 Based on market intelligence, the sales director believes that a close competitor will be submitting a price lower than the standard cost of Defution Ltd. As Defution Ltd has spare factory capacity, the sales director has requested you to advise on an acceptable minimum price. Your investigations have revealed the following:

1. Preliminary investigation work has been carried out for the preparation of the tender. This had cost 5,000.
2. Defution Ltd has 5,000 kg of Material Alfonso in stock. These materials are regularly used and can only be purchased from a supplier in Australia. The company has just received notification from the Australian supplier that the price for Material Alfonso has been increased to 30 per kg. Its scrap value is 22 per kg. The company is aware that an equivalent material can be sourced locally but this will cost three times more than the price charged by the Australian supplier. Although the locally sourced material will reduce its carbon footprint, Defution Ltd has decided to use Material Alfonso for the tender due to cost considerations. Material Becker is rarely used by Defution Ltd. The company was planning to dispose of the 2,000 kg of Material Becker it has in stock at a scrap value of 40 per kg. The current purchase price of Material Becker is 50 per kg.
3. Defution Ltd has 8,000 hours of idle labour capacity. This is direct labour capacity that the company can utilise as and when required. The company will not have to pay the direct labour should there be no available work. All other direct labour capacity is tied up with other projects and the company is unable to hire any additional direct labour from the external market. This means that should the tied up direct labour be required on the tender, the company will have to forgo contribution from other projects of 33 per hour. The direct labour is currently paid 12 per hour.
4. In order to manufacture the special purpose containers, a machine that has not been used for two years will be required. The company will have to carry out maintenance work on the machine before it can be used. The maintenance work will cost 9,000.
5. It is estimated that the actual variable overheads for this tender will amount to 9.60 per container.
6. Fixed overheads are allocated to the tender based on standard machine hours. The estimated increase in fixed overheads should the tender be undertaken is 8,000.
7. The sales department estimates that it will cost 3,000 to complete the paperwork for the tender submission. Required: a) Using relevant costing, advise on the minimum price that would be appropriate for the tender submission. You should detail all items and clearly explain the rationale behind your calculations. (14 marks) b) Outline factors that should be considered before using the minimum price for the tender submission. (6 marks) c) Fixed costs and sunk costs are often treated as irrelevant when using relevant costing. However, some argue that this depends on the decision at hand. Discuss this point of view using academic literature.