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| Cyclo Glue Cyclo Glue (CG) manufactures and sells various adhesives and glues typically for the marine industry but also for use in general woodworking. The standard glue has a strong brand image and is sold at a price of $5·99 per 100 millilitres (ml). CG is considering processing some of the glue further by adding an anti-mould chemical to protect wood as well as glue it together. Market research carried out suggests that a premium could be charged for this extra ingredient. The market research has cost $2,000. However, there are some concerns that the anti-mould chemical can cause breathing problems. Data has been prepared for the costs and revenues expected for the following month (a test month) assuming that a part of the company’s output will be further processed by adding the anti-mould chemical. The output selected for further processing is 1,000 litres which costs $3 per litre. The labour required to produce 1,000 litres of the basic glue before any further processing is 300 hours at a cost of $15 per hour. Five litres of anti-mould chemical will be added to the 1,000 litres of output selected. This chemical costs $1,800 per litre. CG will hire additional machinery costing $10,000 per month if it further processes the glue. The new processes will be supervised by one of the more experienced supervisors currently employed by CG. His current annual salary is $35,000 and it is expected that he will spend 10% of his time working on the new process during the test month. An extra 180 labour hours will be required to further process the glue. Labour is currently fully employed, making the standard product. However the hours required could be obtained through overtime work which would be paid at time and a half. The additional processing is expected to drive additional overheads costs of $5/hour. CG allocates fixed overhead at the rate of $15 per labour hour to all products. The new glue would be sold at $8.99 per 100 ml.Required (a) Outline the financial and other factors that CG should consider when making a further processing decision. (5 marks) |