The National Environmet
Cecilia Nanette Mendoza Leal
Assignment 2 – Budgeting, cost and pricing decisions
Task 1
The new contract is for 75 XS1 parts. The materials for these will cost $55,000; direct wages to engineer the parts will be $45,000; other direct costs will amount to $25,000. a) What is the direct unit cost for each part?
1,666.66
b) Explain how and why unit cost is calculated
It is calculated by adding all the direct costs and dividing it between the number of units.
(55,000 + 45,000 + 25,000) / 75 = 1,666.66
125,000 / 75 = 1,666.66
The unit cost is calculated: * To know the selling price * To know how much you need to make a profit * To know your expenses
c) The target mark up for this type of product is 25% on direct costs. What would the selling price per unit be based on the target mark up?
It would be the result of 1,666.66 x 1.25 (or 1,666.66 x 0.25 + 1,666,66), which would be $2083.33
d) If the company wins the contract it will mean ongoing sales. They have heard that a competitor sells similar parts for $2,000 each. The Sales Director thinks they will need to beat this price by $50 per item to be sure of winning the contract by may be able to persuade the client to buy more items at a cheaper price. e) How many more items do they need to sell at a price of $1950 to make the same contribution as 75 items at the selling price calculated above?
2083.33 x 75 = 156,249.375
156,249.375 / 1,950 = 80.13
They need to sell extra 5.13 items, but because an item cannot be a expressed with decimal number, they would need to sell 5 (which would be a little bit less) or 6 (which would be a little bit more)
Task 2 a) If they win the contract, the materials and other direct costs plus one third of the wages will fall into month one. The remainder of wages will be charged in month 2. Income will be received in Month 3. Calculate the impact on the existing cash budget (below) and identify any additional finance needs (Assume you
Assignment 2 – Budgeting, cost and pricing decisions
Task 1
The new contract is for 75 XS1 parts. The materials for these will cost $55,000; direct wages to engineer the parts will be $45,000; other direct costs will amount to $25,000. a) What is the direct unit cost for each part?
1,666.66
b) Explain how and why unit cost is calculated
It is calculated by adding all the direct costs and dividing it between the number of units.
(55,000 + 45,000 + 25,000) / 75 = 1,666.66
125,000 / 75 = 1,666.66
The unit cost is calculated: * To know the selling price * To know how much you need to make a profit * To know your expenses
c) The target mark up for this type of product is 25% on direct costs. What would the selling price per unit be based on the target mark up?
It would be the result of 1,666.66 x 1.25 (or 1,666.66 x 0.25 + 1,666,66), which would be $2083.33
d) If the company wins the contract it will mean ongoing sales. They have heard that a competitor sells similar parts for $2,000 each. The Sales Director thinks they will need to beat this price by $50 per item to be sure of winning the contract by may be able to persuade the client to buy more items at a cheaper price. e) How many more items do they need to sell at a price of $1950 to make the same contribution as 75 items at the selling price calculated above?
2083.33 x 75 = 156,249.375
156,249.375 / 1,950 = 80.13
They need to sell extra 5.13 items, but because an item cannot be a expressed with decimal number, they would need to sell 5 (which would be a little bit less) or 6 (which would be a little bit more)
Task 2 a) If they win the contract, the materials and other direct costs plus one third of the wages will fall into month one. The remainder of wages will be charged in month 2. Income will be received in Month 3. Calculate the impact on the existing cash budget (below) and identify any additional finance needs (Assume you