Trent Controls Ltd is an electronic engineering business thatspecialises in the production of electronic equipment for securityforces throughout the world. Recently it has received a request toproduce 10 x VVD units for a foreign government. The VVD wasdeveloped some time ago by the business at a total research anddevelopment cost of £220,000. Up to this point there has been nointerest shown in the equipment and no units have been produced.The present order seems likely to represent the total sales for theVVD. The product specification for each unit is set out below:Materials Component A - 3 per unit Component B - 1 per unitComponent C - 2 per unit Component A is normally held in inventoryas it is a component that is widely used for other products withinTrent Control’s product range. There are 15 components currentlyheld in inventory. These cost £1,800 each. The sole supplier ofthis component has announced an immediate price rise of 5% for anyfuture purchases. Component B is no longer used for any other ofTrent Control’s products. There are six components in inventorycosting £2,000 each. It is now possible to buy additionalcomponents at a cost of £2,200 each; however, the supplier insistson a minimum order quantity of six components. Any components thatare not used on this contract will be disposed of at a total costto Trent Controls of £250, irrespective of the quantity to bedisposed. Component C is used by the business throughout itsproduct range. At present there is none in inventory. However, anorder for 20 components for use in another contract is about to beplaced. The supplier normally charges £1,600 per component but fororders above 30 components a discount of 10% is available on thetotal order price. Additional materials costing £2,800 in totalwill have to be bought if the contract is undertaken. LabourAssembly time is estimated at 10 hours for each VVD unit. Theworkforce required to assemble the product is paid £7.00 an hourand is in great demand. If the order is accepted the necessarylabour will have to be transferred from existing work and, as aresult, other orders will be lost. It is estimated that for eachhour that labour is transferred to this product £50 of salesrevenue will be lost but that savings of £15 an hour in materialsrelating to lost sales will be made. Inspection time is estimatedat five hours for each VVD unit. Inspection labour can be providedby paying existing employees overtime which is paid at a 33.334%premium over the standard rate of £6.00 an hour. Overheads Thebusiness normally includes a mark-up of 30% to cover overheads.This contract is not expected to give rise to any increases inoverheads.

Required: Prepare an estimate of the absolute minimum price thatTrent Controls Ltd could undertake the contract for, in order thatthe business would be no worse off as a result of taking the order.Your answer should clearly explain your treatment of all of theinformation given in the question.