TELFORD ENGINEERING P/L account:

"Menai $,000 P/L

(before MEXIT)" "Menai $,000 Actual P/L

(one year after MEXIT under outsource option)"

Sales 8,000 7,200

• Note: Exports to CETA based customers pre-MEXIT = 40% and the volume of these fell by 30% post-MEXIT
  

Costs Production costs

Materials -2,000 -2,160

Note: 50% of imports Pre-MEXIT are from CETA based suppliers

Staff costs -1,500 -1,800

Overheads -300 -300

Distribution costs

Staff costs -600 -680

Other costs -160 -160

Gen Admin costs

Staff costs -900 -1,000

Other costs -200 -200

Accounting costs * -800 -700

Finance costs -100 -100



Net profit 1,440 100

Exchange rate: C$/M$ 1.40 1.12

Net effect

After MEXIT the exchange rate value of $M fell from $C1.40 to the current rate of $C1.12. This has meant that the material imports from CETA have become significantly more expensive. The translated cost of these imported materials from CETA in the current P/L account is $M’1,100,000. The purchasing team have identified an alternative domestic supplier source for all of the imported materials from CETA, who will charge Telford Engineering the same amount as it originally cost the company to import these materials at the pre-MEXIT exchange rate.Calculate the effect on net profit