During the current year, the Jordan family trust, an inter vivos trust, has business income of $220,000. Of this amount, $50,000 is retained in the trust with a joint election….
Indicate the minimum price at which the contract could be undertaken, such that the business would be neither better nor worse off as a result of doing it.
Andrews and Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres
of an electrical cable in which the business specialises. The estimating department of the business has produced the following information relating to the contract:
l Materials: The cable will require a steel core, which the business buys in. The steel core is
to be coated with a special plastic, also bought in, using a special process. Plastic for the
covering will be required at the rate of 0.10 kg/metre of completed cable.
l Direct labour: Skilled: 10 minutes/metre; Unskilled: 5 minutes/metre.
The business already holds sufficient of each of the materials required to complete the
contract. Information on the cost of the inventories is as follows:
The steel core is in constant use by the business for a variety of work that it regularly undertakes.
The plastic is a surplus from a previous contract where a mistake was made and an
excess quantity ordered. If the current contract does not go ahead, this plastic will be scrapped.
Unskilled labour, which is paid at the rate of £7.50 an hour, will need to be taken on specifically
to undertake the contract. The business is fairly quiet at the moment which means that
a pool of skilled labour exists that will still be employed at full pay of £12 an hour to do
nothing if the contract does not proceed. The pool of skilled labour is sufficient to complete
Indicate the minimum price at which the contract could be undertaken, such that the business
would be neither better nor worse off as a result of doing it.