A company had nearly completed a job relating to construction of a specialised equipment, when it… 1 answer below »
A company had nearly completed a job relating to construction of a specialised equipment, when it discovered that the customer had gone out of business. At this stage, the position of the job was as under: (`) Original cost estimate 1,75,200 Costs incurred so far 1,48,500 Costs to be incurred 29,700 Progress payment received from original customer 1,00,000 After searches, a new customer for the equipment has been found. He is interested to take the equipment, if certain modifications are carried out. The new customer wanted the equipment in its original condition, but without its control device and with certain other modifications. The costs of these additions and modifications are estimated as under: Direct Materials (at cost) ` 1,050 Direct Wages Dept.: A 15 men days Dept.: B 25 men days Variable Overheads 25% of Direct Wages in each Dept. Delivery Costs ` 1,350 Fixed overheads will be absorbed at 50% of direct wages in each department. The following additional information is available: (1) The direct materials required for the modification are in stock and if not used for modification of this order, they will be used in another job in place of materials that will now cost ` 2,250. (2) Department A is working normally and hence any engagement of labour will have to be paid at the direct wage rate of ` 120 per man day. (3) Department B is extremely busy. Its direct wages rate is ` 100 per man day and it is currently yielding a contribution of ` 3.20 per rupee of direct wages. (4) Supervisory overtime payable for the modification is ` 1,050. (5) The cost of the control device that the new customer does not require is ` 13,500. If it is taken out, it can be used in another job in place of a different mechanism. The latter mechanism has otherwise to be bought for ` 10,500. The dismantling and removal of the control mechanism will take one man day in department A. (6) If the conversion is not carried out, some of the materials in the original equipment can be used in another contract in place of materials that would have cost ` 12,000. It would have taken 2 men days of work in department A to make them suitable for this purpose. The remaining materials will realize ` 11,400 as scrap. The drawings, which are included as part for the job can he sold for ` 1,500. Required Calculate the minimum price, which the company can afford to quote for the new customer as staled above.