MAC Paper Dec 2009

A-Vic

In task 1.4 c it asks whether the offer from kteep should be accepted!

Production costs = 1.75 per meal
Variable Costs = 1.05 per meal

Offer price per meal = 1.50 per meal

I said no due to the fixed overheads not been covered for that amount of meals, the answer was yes.

It also goes on to say that fixed costs do not have to be considered as it is a short term deal.

Am a little lost becasue with such a large order would you not have to consider fixed costs ?

Thanks for any input

jewels.p

I could be wrong Vic but is it not something to do with no matter how big or small an order is you will still have to pay the fixed costs so you would go by how much contribution is available?

A-Vic

jewels.p wrote: »

I could be wrong Vic but is it not something to do with no matter how big or small an order is you will still have to pay the fixed costs so you would go by how much contribution is available?

you lost me there jewels

jewels.p

I am not good at trying to explain things. The variable cost is £1.05 per meal so there is a contribution of 45p per meal towards fixed costs.If the offer had been less than £1.05 per meal I wouldave said no as there is nothing towards contribution. Or am I totally not understanding what you are asking?

A-Vic

jewels.p wrote: »

I am not good at trying to explain things. The variable cost is £1.05 per meal so there is a contribution of 45p per meal towards fixed costs.If the offer had been less than £1.05 per meal I wouldave said no as there is nothing towards contribution. Or am I totally not understanding what you are asking?

Now i get what you mean i put a simular sort of answer but what about the profit mark up in that case? i dont know maybe am over evaluating it, i was wondering is this like DFS if you can back up your reasons even if not the same as exam answer would you get marks for it?

jewels.p

Dont think you need to think about profit mark-up in this instance. I sometimes look too deeply into things as well and spend ages trying to get to the bottom of it when the answer is staring me straight in the face!

Dont think you would get any marks as it has nothing to do with what they are asking of you.

A-Vic

Task 1.4 (25 minutes)

Colonel Curry has been approached by an overseas supermarket chain (Kteep) to purchase some ready meals. Kteep has offered to purchase the meals at £1.50 per meal.

(a) Calculate the full production cost per meal based on the budget for 40,000 meals.

(b) Calculate the variable production cost per meal.

(c) Recommend, with an explanation, whether the offer from Kteep should be accepted.

(d) State THREE other factors which need to be considered.


What am asking is you are asked to give your recomendations, the reason i question it is because you worked out the full production cost at 1.75. The answer i gave was:-

The offer should not be accepted for the following reasons although the varible costs may be covered giving a 45p towards fixed overheads under the production costs that include fixed oveheads will not be reached. Losing out on 25p per unit, also it isnt alowing for any increases that may reduce the profit percentage when the contact is agreed.

All the question is asking is your recommendations

jewels.p

I think we need to call in Sandy!..........................Sandy where are you when we need you?

SandyHood

Look again.

You know what the fixed costs will be at 40,000 meals: - £28,000
and that this is exactly the same as it would be for 30,000 meals

So if you start from a point where 30,000 are being produced and we might or might not accept the Kteep supermarket offer at £1.50 per meal then:

1. Do we have the capacity?
2. Will fixed costs change?

1. We could produce 50,000 (may be even more)

2. The fixed costs are not relevant to this order.

With the order.... = Fixed cost £28,000
Without the order = Fixed Cost £28,000
Extra fixed cost.........................nil

So only the variable costs should be considered, these are the only costs that will change if the order is accepted.

A-Vic

i missed the capcity of 50,000 meals thats what had me confused thanks jewels and sandy