Business and Tender Analysis for Masters

Sample Answer

Business and Costing Analysis for Masters Clothing Ltd

Business Size-Up and Net Profit Margin

A business size-up helps understand the company’s current position. Masters Clothing Ltd is a medium-sized garment manufacturer producing basic apparel such as T-shirts, boxers, and coveralls. It is operating in a competitive market and seems to be targeting affordable bulk sales to retailers or contractors.

To find the net profit margin, we look at:

Net Profit Margin = (Net Profit / Revenue) × 100

Assuming Masters earns an annual revenue of £5 million and has net profits of £500,000:

Net Profit Margin = (500,000 / 5,000,000) × 100 = 10%

Thus, Masters appears to be targeting a net profit margin of around 10%, which is reasonable for a manufacturing company in the clothing sector, balancing between competitiveness and profitability.

Costing of Products (T-Shirt, Boxers, Coveralls)

Masters uses three costing methods:

• Direct Costing – includes raw materials and direct labour

• Absorption Costing – includes direct costs + fixed overheads (allocated)

• Full Costing – includes all costs (direct, indirect, fixed, admin, etc.)

Current Production Levels:

• T-shirts: 100,000 units/year

• Boxers: 50,000 units/year

• Coveralls: 20,000 units/year

This breakdown shows that coveralls are the most expensive to produce and carry higher risk if priced incorrectly.

Qualitative Assessment of Tender Opportunities

Tender 1: 50,000 T-Shirts for a UK Retail Chain

• Pros:

  • High volume order

  • Strengthens domestic market presence

  • Easier communication and logistics

• Cons:

  • May require tighter delivery deadlines

  • Price-sensitive buyer, possibly low profit

Tender 2: 10,000 Coveralls for Government Defence Contract

• Pros:

  • Government tenders can improve credibility

  • May offer long-term partnership

• Cons:

  • Complex compliance requirements

  • Higher quality expectations

  • Possible penalties for late delivery

In summary, Tender 1 is less risky but less profitable. Tender 2 has higher complexity but could open bigger future contracts.

Suggested Per-Unit Bid Prices and Minimum Prices

To maintain the 10% net profit margin:

Tender 1: T-Shirts

• Full Cost = £3.50

• Target Selling Price (10% profit) = £3.85

• Minimum Break-even Price = £3.50

Tender 2: Coveralls

• Full Cost = £8.00

• Target Selling Price (10% profit) = £8.80

• Minimum Break-even Price = £8.00

If competitors are undercutting prices, Masters could reduce the profit margin slightly but must avoid going below full cost.