Lesson 1, Topic 1
In Progress

3.2. Product/Services costs and prices applicable to the tender are calculated accurately.

ryanrori January 7, 2021

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Selloane Radebe wants to submit a tender where she has to manufacture and supply 250 overalls to the Defence Force.

Number of overalls = 250

A.        Variable Costs  (VC)

Raw material

250 (fabric for overalls)  x  R25-00 (per overall)                                =   6 250-00  (M)

Manufacturing labour (Direct labour)

250 (overalls)  x  R4-00 (labour cost per overall)                               =   1 000-00  (N)

Manufacturing overheads (Equipment, electricity, etc)

250 (overalls)  x  R4-00 (overhead cost per overall)                           =   1 000-00  (O)

Packaging

250 (overalls)  x  R2-00 (cost per overall)                                        =   500-00  (P)

TOTAL VARIABLE COST

6250-00 (M) + 1000-00 (N) + 1000-00 (O) + 500-00 (P)                    =   8 750-00 (Q)

B.        Fixed Costs (FC)

Non-refundable deposit                                                               =   75-00

Transport to collect tender documents                                            =   20-00

Transport to deliver tender documents                                           =   20-00

Transport to deliver final product (overalls)                                     =   50-00

Fixed portion of overhead costs per job lot                                      =   5 000-00

(Rent, telephone, management salaries, fax, etc)

TOTAL FIXED COST                                                                                 =   5 165-00 (R)

TOTAL TENDER COST

(FC) 8750-00 (Q)  +  (VC) 5165-00 (R)=                                         13 915-00 (S)

Tender mark-up %                  =     20%                                     =   2 783-00 (T)

Tender price (exclusive of VAT) (S) + (T)=                                      16 698-00 (U)

VAT @14%                                                                              =   2 337-72 (V)

TENDER PRICE  (Inclusive of VAT) (U) + (V)=                               19 035-72

The internal factors impacting upon pricing decisions are identified and discussed in relation to the profitability of the tender.

  • Not enough staff capacity to complete the tender in the specified time allowed.
  • Existing staff needs to be trained (costly) to accommodate new products.
  • New staff needs to go through an extensive training programme to have the same skills as the existing staff.
  • If it is a small business existing personnel can get frustrated as there is no means for promotion to a higher position.