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CoursHeroTranscribedText: A business places substantial emphasis on customer satisfaction and, to this end, delivers Its product in special protective containers. These containers have been made in a department within the business. Management has recently become cmcerned that this lntemal supply of containers Is very expensive. As a result, outside suppliers have been invited to submit tenders for the provision of these containers. A quote of 250,000 3 year has been received for a volume that compares with current lntemal supply. An Investigation into the internal costs of container manufacture has been undertaken and the following emerges: (I) The annual cost of material ls 120,000, according to the stores records maintained, at actual historic cost. Threequarters (by cost) of this represents material that is regularly stocked and replenished. The remaining 25 per cent of the material cost is a special foam- ing chemical that is not used for any other purpose. There are 40 tonnes of this chemical curreme held- it was bought in bulk for T50 a tonne. Today's replacement price for this material is 1,050 a tonne but it Is unlikely that the business could realise more than 600 a tonne if it had to be disposed of owing to the high handling costs and special transport facilities required. (ll) The annual labour cost is 980,000 for this department; hull-ever, most are casual employees or recent starters, and so, it an outside quote were accepted, little redundancy would be payable. There are, however, two long-serving employees who would each accept as a salary 15,000 a year until they reached retirement age in two years' time. (ill) The department manager has a salary of 30,000 a year. The closure of this department would release him to take over another department for which a vacancy ls about to be advertised. The salary, status and prospects are similar. {iv} A rental charge of 9,750 a year, based on floor area, Is allocated to the containers depart- ment. if the department were closed, the floor space released would be used for were- housing and, as a result, the business would give up the tenancy or an existing warehouse for which it is paying 15,?50 a year. (v) The plant cost 21 62,000 when it was bought five years ago- Its market value now is 23,000 and It could continue for another two years, at which time its market value would have fallen to zero. {The plant depreciates evenly over time.) (vi) Annual plant maintenance costs are 9,900 and allocated general administrative costs 33,?50 for the coming year. Required: Calculate the annual cost of manufacturing containers tor comparison with the quote using relevant figures for establishing the cost or benefit of accepting the quote. Indicate any assump- tions or qualications you wish to make

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