A friend of yours owns a kitchen manufacturing business in Limerick City called BlurredKitchens Limited. The business employs twenty-six people and these comprise fully qualifiedcarpenters, trainee carpenters, sales staff, delivery staff and administration staff. Your friend hasrecently received a job proposal from a large developer in Donegal to manufacture and fit kitchensfor 25 houses in a housing estate in Donegal Town. The work will take eight weeks to fullycomplete. He has made out the following financial details for you to study and has asked you towrite a formal consultancy report for which you will be financially rewarded.Raw materialsThe chief raw material that Blurred Kitchens Limited uses in all its kitchens is an Indonesiantimber. This timber will cost GH₵4,600 per kitchen. There is already, in stock, enough timber tomake and fit 5 kitchens. This stock of timber had originally cost GH₵3,280 per kitchen but hassince increased in price. Supplementary materials will cost GH₵98 per kitchen. There is sufficientstock of supplementary materials to be able to complete this job.LabourThree extra workers will need to be employed if this job goes ahead. One additional qualifiedcarpenter will be paid GH₵900 per week for 8 weeks. Two additional unqualified carpenters willbe paid GH₵410 each, per week, for 8 weeks. A supervisor carpenter, currently employed fulltime, will need to spend 4 weeks supervising this job. He is currently paid GH₵1,100 per week.An administrative staff member who would generate income of GH₵240 per kitchen for thebusiness by selling add-on products such as microwaves, will now have to be employed for 6weeks on this particular job, and will not be able to perform his usual sales duties for the durationof the job. This staff member is currently a full-time employee and is paid a salary of GH₵690per week.OverheadsProduction overheads are expected to be GH₵3,800 for this particular job, 75% of these costswill be fixed. A cutting machine with a net book value of GH₵290,000 will be needed. Straightline depreciation of 20% is applied to this machine. A truck that is currently rented out to acustomer at GH₵515 per week will need to be diverted from this use. This truck has a depreciationcharge of GH₵1,500 per month in the accounts of Blurred Kitchens Limited. A general overheadof GH₵400 per week is charged through the accounts of Blurred Kitchens Limited and will applywhether this particular job goes ahead or not.Accounts departmentThe accounts department employs two staff. These are both paid GH₵45,000 per annum. Thiscost is treated as a fixed cost. One of the staff will need to work overtime for the entire length ofthe job. This overtime is usually GH₵220 per staff member per week.AdvertisingAn advertising campaign carried out by Blurred Kitchens Limited at the beginning of the currentfinancial year, which may have sparked this interest from Donegal, has already cost GH₵18,200.Only 50% of this has been paid so far and the remainder will not be paid until the end of the year.Kitchen designIn order to impress the Donegal customer, the design of these particular kitchens were made by agraphic design firm in Ennis earlier in the year. These designs were more expensive than the moreusual in –house designs. The costs for these designs came to GH₵ 3,900 in total and they will notbe used for any other job.AccommodationDue to travelling a long distance for this particular job accommodation will be necessary. It isestimated that 8 employees will need to spend 42 nights each in a local hotel at a cost of GH₵ 48per night each.PaymentThe developer has agreed to pay 25% of the job proposal in advance and the remainder will bepaid 6 months after completion.Mark up on total costsA mark up of 150% on full costs is required on all jobs.Required:a) Prepare a detailed report for Blurred Kitchens Limited, clearly explaining the basis forinclusion and exclusion of each element of costs for this job. b) Calculate the total cost and required mark-up of the above job. c) Discuss factors, other than costs, that should also be considered before this job can be accepted.d) Discuss how Blurred Kitchens Limited may reduce the risks involved in the Job
A friend of yours owns a kitchen manufacturing business in Limerick City called Blurred
Kitchens Limited. The business employs twenty-six people and these comprise fully qualified
carpenters, trainee carpenters, sales staff, delivery staff and administration staff. Your friend has
recently received a job proposal from a large developer in Donegal to manufacture and fit kitchens
for 25 houses in a housing estate in Donegal Town. The work will take eight weeks to fully
complete. He has made out the following financial details for you to study and has asked you to
write a formal consultancy report for which you will be financially rewarded.
Raw materials
The chief raw material that Blurred Kitchens Limited uses in all its kitchens is an Indonesian
timber. This timber will cost GH₵4,600 per kitchen. There is already, in stock, enough timber to
make and fit 5 kitchens. This stock of timber had originally cost GH₵3,280 per kitchen but has
since increased in price. Supplementary materials will cost GH₵98 per kitchen. There is sufficient
stock of supplementary materials to be able to complete this job.
Labour
Three extra workers will need to be employed if this job goes ahead. One additional qualified
carpenter will be paid GH₵900 per week for 8 weeks. Two additional unqualified carpenters will
be paid GH₵410 each, per week, for 8 weeks. A supervisor carpenter, currently employed fulltime, will need to spend 4 weeks supervising this job. He is currently paid GH₵1,100 per week.
An administrative staff member who would generate income of GH₵240 per kitchen for the
business by selling add-on products such as microwaves, will now have to be employed for 6
weeks on this particular job, and will not be able to perform his usual sales duties for the duration
of the job. This staff member is currently a full-time employee and is paid a salary of GH₵690
per week.
Overheads
Production overheads are expected to be GH₵3,800 for this particular job, 75% of these costs
will be fixed. A cutting machine with a net book value of GH₵290,000 will be needed. Straight
line
customer at GH₵515 per week will need to be diverted from this use. This truck has a depreciation
charge of GH₵1,500 per month in the accounts of Blurred Kitchens Limited. A general overhead
of GH₵400 per week is charged through the accounts of Blurred Kitchens Limited and will apply
whether this particular job goes ahead or not.
Accounts department
The accounts department employs two staff. These are both paid GH₵45,000 per annum. This
cost is treated as a fixed cost. One of the staff will need to work overtime for the entire length of
the job. This overtime is usually GH₵220 per staff member per week.
Advertising
An advertising campaign carried out by Blurred Kitchens Limited at the beginning of the current
financial year, which may have sparked this interest from Donegal, has already cost GH₵18,200.
Only 50% of this has been paid so far and the remainder will not be paid until the end of the year.
Kitchen design
In order to impress the Donegal customer, the design of these particular kitchens were made by a
graphic design firm in Ennis earlier in the year. These designs were more expensive than the more
usual in –house designs. The costs for these designs came to GH₵ 3,900 in total and they will not
be used for any other job.
Accommodation
Due to travelling a long distance for this particular job accommodation will be necessary. It is
estimated that 8 employees will need to spend 42 nights each in a local hotel at a cost of GH₵ 48
per night each.
Payment
The developer has agreed to pay 25% of the job proposal in advance and the remainder will be
paid 6 months after completion.
Mark up on total costs
A mark up of 150% on full costs is required on all jobs.
Required:
a) Prepare a detailed report for Blurred Kitchens Limited, clearly explaining the basis for
inclusion and exclusion of each element of costs for this job.
b) Calculate the total cost and required mark-up of the above job.
c) Discuss factors, other than costs, that should also be considered before this job can be accepted.
d) Discuss how Blurred Kitchens Limited may reduce the risks involved in the Job
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