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Seeprint Limited Is Negotiating An Initial One Year Contract With

Seeprint Limited is negotiating a one-year contract to supply specialized color catalogs. The document provides cost data including fixed costs of £60,000 and variable costs per catalog of £8.80. It asks to calculate profits and expected profit for various order amounts and material costs, and discuss implications of accepting the contract.

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Amit Pandey
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78 views2 pages

Seeprint Limited Is Negotiating An Initial One Year Contract With

Seeprint Limited is negotiating a one-year contract to supply specialized color catalogs. The document provides cost data including fixed costs of £60,000 and variable costs per catalog of £8.80. It asks to calculate profits and expected profit for various order amounts and material costs, and discuss implications of accepting the contract.

Uploaded by

Amit Pandey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Solved: Seeprint Limited is negotiating an initial one year

contract with
Seeprint Limited is negotiating an initial one year contract with

Seeprint Limited is negotiating an initial one year contract with an important customer for the
supply of a specialized printed colour catalogue at a fixed contract price of £16 per catalogue.
Seeprint's normal capacity for producing such catalogues is 50 000 per annum.

Last year Seeprint Limited earned £11 000 profit per month from a number of small accounts
requiring specialized colour catalogues. If the contract under negotiation is not undertaken, then
a similar profit might be obtained from these customers next year, but, if it is undertaken, there
will be no profit from such customers.

The estimated costs of producing colour catalogues of a specialized nature are given below.

The costs below are considered certain with the exception of the direct materials price.

Cost data:

(£)

Variable costs per catalogue

Direct materials ..........................4.50

Direct wages ........................... 3.00

Direct expenses ...........................1.30

Estimated fixed costs per annum:

Depreciation of specialist equipment ............................ £8 000

Supervisory and management salaries............................ £20 000

Other fixed costs allocated to specialist colour

Catalogues production.................................................... £32 000

You are required to:

Reach out to [email protected] for enquiry.


(a) Tabulate the costs and profits per unit and in total and the annual profits, assuming that the
contract orders in the year are:

(i) 40 000, (ii) 50 000 and (iii) 60 000 catalogues, at a direct material cost of £4.50 per
catalogue. Comment on the tabulation you have prepared.

(b) Calculate the expected profit for the year if it is assumed that the probability of the total order
is:

0.4 for 40 000 catalogues

0.4 for 50 000 catalogues

0.1 for 60 000 catalogues

and that the probability of direct material cost is:

0.5 at £4.50 per catalogue

0.3 at £5.00 per catalogue

0.2 at £5.50 per catalogue.

(c) Discuss the implications for See print Limited of the acceptance or otherwise of the contract
with the important customer.

Seeprint Limited is negotiating an initial one year contract with

ANSWER
https://solvedquest.com/seeprint-limited-is-negotiating-an-initial-one-year-contract-with/

Reach out to [email protected] for enquiry.


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