A friend of yours owns a kitchen manufacturing business in Limerick City

 A friend of yours owns a kitchen manufacturing business in Limerick City called Blurred 

Kitchens Limited. The business employs twenty-six people and these comprise fully qualified 

carpenters, trainee carpenters, sales staff, delivery staff and administration staff. Your friend has 

recently received a job proposal from a large developer in Donegal to manufacture and fit kitchens 

for 25 houses in a housing estate in Donegal Town. The work will take eight weeks to fully 

complete. He has made out the following financial details for you to study and has asked you to 

write a formal consultancy report for which you will be financially rewarded.

Raw materials

The chief raw material that Blurred Kitchens Limited uses in all its kitchens is an Indonesian 

timber. This timber will cost GH₵4,600 per kitchen. There is already, in stock, enough timber to 

make and fit 5 kitchens. This stock of timber had originally cost GH₵3,280 per kitchen but has

since increased in price. Supplementary materials will cost GH₵98 per kitchen. There is sufficient 

stock of supplementary materials to be able to complete this job.

Labour

Three extra workers will need to be employed if this job goes ahead. One additional qualified 

carpenter will be paid GH₵900 per week for 8 weeks. Two additional unqualified carpenters will 

be paid GH₵410 each, per week, for 8 weeks. A supervisor carpenter, currently employed full-

time, will need to spend 4 weeks supervising this job. He is currently paid GH₵1,100 per week. 

An administrative staff member who would generate income of GH₵240 per kitchen for the 

business by selling add-on products such as microwaves, will now have to be employed for 6 

weeks on this particular job, and will not be able to perform his usual sales duties for the duration 

of the job. This staff member is currently a full-time employee and is paid a salary of GH₵690 

per week.

Overheads

Production overheads are expected to be GH₵3,800 for this particular job, 75% of these costs 

will be fixed. A cutting machine with a net book value of GH₵290,000 will be needed. Straight 

line depreciation of 20% is applied to this machine. A truck that is currently rented out to a 

customer at GH₵515 per week will need to be diverted from this use. This truck has a depreciation 

charge of GH₵1,500 per month in the accounts of Blurred Kitchens Limited. A general overhead 

of GH₵400 per week is charged through the accounts of Blurred Kitchens Limited and will apply 

whether this particular job goes ahead or not.

Accounts department

The accounts department employs two staff. These are both paid GH₵45,000 per annum. This 

cost is treated as a fixed cost. One of the staff will need to work overtime for the entire length of 

the job. This overtime is usually GH₵220 per staff member per week.

Advertising

An advertising campaign carried out by Blurred Kitchens Limited at the beginning of the current 

financial year, which may have sparked this interest from Donegal, has already cost GH₵18,200. 

Only 50% of this has been paid so far and the remainder will not be paid until the end of the year.

Kitchen design

In order to impress the Donegal customer, the design of these particular kitchens were made by a 

graphic design firm in Ennis earlier in the year. These designs were more expensive than the more 

usual in –house designs. The costs for these designs came to GH₵ 3,900 in total and they will not 

be used for any other job.

Accommodation

Due to travelling a long distance for this particular job accommodation will be necessary. It is 

estimated that 8 employees will need to spend 42 nights each in a local hotel at a cost of GH₵ 48 

per night each.

Payment

The developer has agreed to pay 25% of the job proposal in advance and the remainder will be 

paid 6 months after completion.

Mark up on total costs

A mark up of 150% on full costs is required on all jobs.

Required:

a) Prepare a detailed report for Blurred Kitchens Limited, clearly explaining the basis for 

inclusion and exclusion of each element of costs for this job. 

b) Calculate the total cost and required mark-up of the above job. 

c) Discuss factors, other than costs, that should also be considered before this job can be accepted. 

d) Discuss how Blurred Kitchens Limited may reduce the risks involved in the job.