Question 1: Bristol Landscaping Solutions (BLS) has been operating in the Bristol area since 2017 and has seen consistent growth over the past 4 years. Currently, BLS is bidding to landscape a section of public gardens, and if successful, it could lead to more contracts for the company. It's crucial for BLS to submit a competitive bid. The initial estimate was prepared by the Project Coordinator using market prices and standard charges.
£
Topsoil 1,200
Paving Stones 3,000
Shrubs 4,500
Fountain 6,000
Labour 2,400
Equipment 600
Overheads 2,500
TOTAL COST 20,200
The following information has also been provided:
The company has a stock of topsoil sufficient for this project, but the cost of topsoil has risen by 8% since the initial estimate.
There are leftover paving stones from a previous project, which the company plans to sell to a local supplier for £2,000, as they have no other use with this stones.
The price for the shrubs quoted in the above estimate is the current market value. BLS has half of the required shrubs leftover from another job. If these aren't used, they will be discarded.
The price for the fountain is the standard rate from their regular supplier.
BLS doesn't have available labor capacity, so they need to hire two additional workers for this project. Each will work 35 hours at a rate of £40 per hour.
The equipment needed for this project is a trencher. The £600 represents the depreciation charge on this equipment for the project duration. If not used for this project, the equipment can be rented out, generating £400.
The overheads represent the standard charge which BLS applies to all jobs to help recover general overheads.
Required:
Using relevant costing, produce a revised cost estimate for the project. You are required to provide a schedule showing the revised cost estimate for each item along with a brief explanation why you have OR have not included it.
Question 2: Wilderness Ltd is a prominent manufacturing firm with three production divisions (fabrication, assembly, and finishing). The subsequent unit costs pertain to the company's top-selling item, the Tracker:
Direct Materials £30
Direct Labour Hours 0.6 hours per unit
Direct Labour Cost £20.00 per hour
Machine Hours 0.85 hours per unit
Machine Hour Cost £40 per hour
The following production information has been obtained to produce 150 units of Tracker:
Activity cost information
Number of production set-ups 8
Assembly production run time (hours) 5
Number of production inspections 15
The following cost driver rates are applied to the relevant activities above:
Cost of activities
A production set-up £ 200
An hour on the assembly production line £ 60
A production inspection £ 55
Wilderness Ltd requires a 20% profit margin on all sales.
Required:
Calculate the unit selling price of the Tracker using the information above.
Question 3:
A company manufactures a single product, the Sunbeam, which requires just one material input called the Sunstone. 10 kilogrammes (kgs) of Sunstone are required to produce one unit of Sunbeam.
Each unit of the Sunbeam takes 4 hours of direct labour to produce.
Inventory held on 30 April was 6,000 finished Sunbeam, and 30,000 kgs of Sunstone.
The anticipated demand for the Sunbeam is as follows:
May 10,000 units
June 12,000 units
July 13,500 units with an anticipated opening inventory of 27,000 kgs of Sunstone
It will be company policy to maintain raw material inventory at a level of 30% of the following month's usage, and to maintain finished goods inventory at a level to satisfy 70% of the following month's estimated sales.
Required:
Calculate the following budgets for each of May and June:
Production of Sunbeam (in units)
Materials Usage of Sunstone (in kgs)
Materials Purchase of Sunstone (in kgs)
Direct Labour (in hours)
Question 4: Baker's Delight Ltd. is considering upgrading its production equipment. The project team proposes replacing the existing machine with a more advanced model.
The current machine, if replaced now, could be sold for £200,000. The new upgraded machine comes with a price of £800,000. At the end of its useful life, the new machine is expected to have a disposal value of £30,000.
The projected cash inflows from the new machine are as follows:
Year Cash Flows (£)
1 130,000
2 170,000
3 210,000
4 250,000
5 320,000
Baker's Delight Ltd. requires a rate of return of 12% from all projects and insists on a payback period of no more than 4 years
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
PV factors @ 12% 1.000 0.893 0.797 0.712 0.636 0.567
Required:
Calculate the payback period and NPV for the new production equipment.
2. Based on the decision rules for payback period and NPV, what would be the recommendations for the proposed project?