TJN Ltd Bespoke Furniture Case Study & Report Writing - The Numerical And The Qualitative Factors - Accounting Assignment Help

Assignment Task

The Specials
TJN Ltd produce bespoke furniture. They are situated in the East Midlands and have a workshop in Nottingham.  There are three directors Terry, Neville and Jerry. They are a successful company and have been in business for over 30 years.In the present climate the orders are becoming more competitive and they are finding that some of their skilled staff have spare time each month.  They have three levels of staff working in the production department. Level 1 are always working at full capacity, level 2 have 20 hours of spare capacity per month and level 3 have 300 hours spare capacity per month.

They have a large workshop with a storeroom that is full of materials, some obsolete and some still in use.  Fixed overheads are £15,000 per month and if this order is not completed there is an opportunity to rent out a storage unit for £150 per month. If they do complete this order, then they will need the space to store the furniture once it is complete while waiting for it to be transported to the customer.

Terry has been using the skilled level 3 labour to sort through the materials in their spare time to assess what can be used and what needs to be sold or disposed of.Neville thinks that this time could be better used by lowering the price of “special” orders and gaining some contribution.  Neville has been approached by the Bradbury Company to produce a bespoke set of dining furniture for its’ three hotels.  As the hospitality industry is struggling, at the moment, the Bradbury Company do not want to pay the usual prices that TJN charge and they are asking for a lower price.

Jerry is not sure about this as he feels that good quality handmade furniture should be expensive to maintain their quality image. He is thinking of designing some new furniture and marketing it as a limited-edition range called “Two Tone”.  He has already sourced an interested retailer who will purchase the items for a contribution of £1.50 per hour.Terry is open to new ideas and suggests that they calculate the price for the order from the Bradbury Group and see what it looks like. It is estimated to take a month to complete.  He has put together the following information:

Cost of labour from a local agency:

Variable overheads are based on total labour hours at £5.50 per hour.
There is 150 metres of wood in inventory, the original cost was £40 per metre and this is in regular use.  The cloth for the upholstery is a new design so there is no inventory of this however there is 5 metres of foam for the seats in stock, bought for 80 pence per metre, and this particular foam is not used in any other product range and is due to be thrown away.In order to produce these dining sets the Bradbury Company have requested a particular design to be carved into the sets so a special tool needs to be rented at a cost of £320 per month TJN usually like to calculate their prices by working out their costs and adding on a 25% mark-up on their variable costs.  The Bradbury Company have offered to pay £63,000 for this order.

Required:

Q-Write a report to Terry and include in your report:

Q-Calculate the relevant cost of this order, from the Bradbury Company, including the usual price that TJN would sell it for. 

Q-Discuss the reasoning behind all the figures you have used or not used.

Q-Critically evaluate this order. You should take into account the numerical and the qualitative factors and give an overall view as to whether this type of relevant costing provides good information for decision making. 

Q-Make a recommendation to TJN as to whether they should take this order from the Bradbury Company. 

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