Reference no: EM132322128

Question :

Element	Cost €
Direct Raw Materials	182,000
Consumables a 10% of above	18,200
Manufacturing Labour Cost	35,600
Overhead allowance a 150% of above	53,400
Installation Labour Cost	27,400
Installation overheads a 100% above	27,400
Total Cost	344,000
Profit Mark-up 12.5%	43,000
Price (excl. VAT)	387,000

Exsafe Ltd. manufacture and install external fire escapes for retro fitting to existing buildings. Early in 2015 Exsafe were successful in receiving a contract valued €387,000 which had been priced as attached.

This is a common type of project undertaken by Exsafe, and from experience, such projects have an average delivery (progress completion) of 10% in month one; 40% in month two; and 50% in month three. For accounting convenience, progress claims are always made to clients on this "rule-of-thumb" basis.

Work started on the new project at beginning of March 2015 with an expected completion date of end of May 2015. By the end of April, 50% of the price had been charged to the client (10% in March and 40% in April). Up to the end of April, the following resources had been used on the project:

80% of the total direct raw material quantity required, at a cost of €136,500.

60% of the total manufacturing labour time, at a cost of €22,000.

20% of the total installation labour time, at a cost of €5,100.

In May 2015 you were approached by the Financial Controller who suggested you were running the Project at a loss, because the company was experiencing pressure on cash-flow.Using the above information, find a response to the Financial Controller's comments, giving an analysis of the Project to date, its profit variation, and an explanation for the problem of weak cash-flow.