Reference no: EM13340714

Task - Dire Straits plc

Dire Straits plc. is in the process of preparing a quotation for a special job for a customer. They have asked Diverse Management Consultants to assist them in the decision making process by calculating the relevant costs for the contract and giving advice as to pricing strategy. Dire Straits would like to win the contract as they are currently operating with spare capacity due to the economic conditions prevailing.

The Managing Director has asked you to explain the assumptions that you have made and to highlight any qualitative factors that could affect the decision.

The Technical Department have spent 150 hours working on the contract specification and have estimated costs to be as follows:

                                                                                                              £  

Direct Materials:

4000 units of Alpha at £15 (original cost)                                           60,000

Special part to be purchased                                                              20,000

Direct Labour:

Employees       2000 hours at £12 per hour                                        24,000

Modern Apprentices 400 hours at £6 per hour                                      2,400

Specialist Engineers to be bought in                                                     8,000

Plant and Machinery:

Depreciation                                                                                            3,500

Contract Supervision                                                                               5,000

Technical Department 150 hours at £14 per hour                                   2,100

Sub Total                                                                                             125,000

Central Overhead Recharge @ 10% of the above                                12,500

Total Estimate of Costs                                                                        137,500

To further assist Diversity Consultants the following information has been brought to their attention:

There is enough Alpha material in stock. If it is not used on this contract it is unlikely that it would be required in the near future. If the company chose to sell 4000 units of Alpha it has estimated that it would generate £20,000.

The current employees will be used on the contract as there is currently no work for them and there are no plans to recruit further modern apprentices. However one extra operative will need to be recruited from an agency at a cost of £800.

With regard to contract supervision it is expected that no extra staff would be required but if the contact is won there could be overtime required at a cost of £500.

Finally the work has been completed by the Technical Department with no additional costs being anticipated.