Case studies on relevant costing

Mr. .Lockstock has been asked to quote a price for a special customer .he has
already prepared his tender but has asked you to review it for him.
He has pointed out to you that he wants to quote a minimum price as he
believes this will lead to more profitable work in future.
Mr lockstock tender
Materials :
Material A: 2000 KGS @Rs 10 per kg
Material B: 1000 kgs @ Rs 15 per kg
Material c: 500 kgs @ Rs 40 per kg
Material D: 50 litres @ Rs 12 per litre
Labor
Skilled labor 1000 hrs @ Rs 25 per hour
Semi-skilled labor : 2000 hrs @ Rs 15 per hour
Unskilled labor : 500 hrs @ Rs 10 per hour
Fixed overheads
3500 hours @ Rs 12 per hour
Cost of preparing the tender
Mr. lockstock time
Other expenses
Minimum profit (5 % of the total cost)
Minimum price of the tender
Other information

Rs
20000
15000
20000
600
25000
30000
5000
42000
1000
500
7725
1,66,825

Material A:
1000 kgs of this material is in the stock at a cost of Rs 15 per kg. he has an
alternate use for this material and intends selling it for Rs 2 per kg. if he sold any
would have to pay a fixed sum of Rs 300 to cover disposal cost. The current
purchase price Rs 14 per kg.
Material B:
There is plenty of this material in the stock at a cost of Rs 18 per kg. the
current purchase price has fallen to Rs 15 per kg. This material is constantly used
by Mr. lockstock.
Material C:
The total amount in stock of this material of 500 kgs was bought for Rs 10000 some
years ago for another off contract which never happened .mr loc stock considering
selling it for a total of 5000 or it it can be used as a substitute for another regular
material in the production process if used so in later manner , it would save Rs 8000
of other material. Current purchase price is Rs 40 per kg.

Material D:
There are 100 litres of this material in the stock and it is dangerous and if not used
in this contract, will have to dispose off for a total of Rs 500. Current purchase price
is Rs 12 per liter.
Labor
Mr .lockstock hires skilled workers when he needs it.Rs 25 per hour is the
current rate of wages for skilled labor force. He has 25 semiskilled workers who are
currently fully employed in a production process. Number of spare hour capacity of
semiskilled labor is currently 1500 hours. Any hour paid in excess of spare capacity
will be paid at a time and half. Hourly rate of payment is Rs 15.

Fixed overheads
All the fixed overheads mentioned above are general fixed overheads. There
is no incremental cost on the fixed overheads.
Cost of preparing the tender:
Mr. lockstock has worked on the preparation of tender for 10 hours at a cost
of Rs 100 per hour. Other cost includes the cost of travelling and cost of research
and development.

Required
Calculate and explain the minimum price of tender to be offered to customer.