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XYZ CarFix Ltd$,$ a local car service center received an offer from one of the clients offering the company a one$-$ year contract for additional work. The client requires a discount of $12\%$ to be allowed on the total invoice value. Given the following information:

$1-$ Additional required capital $($fixed assets$)$ investments will be:

Equipment $$18,000$

Computers and Software $$14,000$

The $$Equipment$$ must be purchased by the XYZ CarFix Ltd$.$ and will not be usable for any other contract. XYZ CarFix Ltd$.$ can either purchase the computers $($including software$)$ for $$14,000$ or lease them for $$6,000$ per year. The $$Computers and Software$$ may be used on other work after the end of this particular contract for $2$ additional years.

Additional workers will be required. Five full$-$time skilled mechanics earning $$10$ per hour will each work $40$ hours per week on the new contract. They are each allowed $4$ weeks per year paid holidays and $2$ weeks paid training. Workers efficiency is $95\%$ measured as the ratio of sold hours$/$hours attended. Training time and holiday time are charged to direct costs of the department. For each worker the new contract will leave $10\%$ unsold hours available for any other jobs coming into the car service center. One full$-$time car cleaner will be required earning $$15,000$ per annum.

$2-$ The client claimed that the likely increase in sales volume resulting from the new contract could be $5,000$ hours charged at a rate of $$26\mathrm{.}00$ per hour before discount. In addition, the increase in sales of car parts is estimated on the basis of $$50\mathrm{.}00$ per hour with an average margin of $10\%$ before discount. The increase in paint sales is calculated on the basis of $$5\mathrm{.}00$ per hour with an average margin of $30\%$ before discount.

$3-$ Additional annual overheads will be as follows:

Total Variable Overhead costs $15,000$

Total Cash Fixed costs $8,000$

Depreciation is calculated on a straight$-$line basis.

You were hired as a consultant to provide your opinion on the acceptability of the client$$s proposal.

Required:

$($a$)$ Highlight briefly all financial and nonfinancial considerations relevant to the decision$-$making process.

$($b$)$ Write a memo $3$ pages max $($including detailed calculations and any assumptions you have made$)$ and give advice to XYZ CarFix Ltd management indicating the fin ancial and nonfinancial advantages and disadvantages of the proposal.

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