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