Question

Tamar Builders Ltd has been asked to build a conservatory for a customer.

The conservatory will require 15​ hours' supervision time by a foreman who is paid​ £10 per hour. The foreman has spare capacity during normal working hours but it is estimated that 10 hours of the supervision will have to be undertaken outside normal working hours and will be paid at​ £12 per hour.
​Semi-skilled workers will be required for the job for 150 hours in total. The current rate per hour is​ £7. The business has some spare​ capacity, at​ present, and so these workers have been undertaking jobs that are normally undertaken by unskilled workers. If the​ semi-skilled workers are required to build the​ conservatory, they will be taken off the unskilled jobs that will be done by unskilled workers who are normally paid​ £5 per hour.​ However, because the unskilled workers are already fully​ occupied, they will do the jobs outside normal working hours at an overtime rate of​ £6 per hour.
What is the relevant cost of labour when assessing the viability of the conservatory​ contract?

A. £920
B. £​1,070
C. £​1,220
D. £​1,020

Answer 1

The relevant cost of labor when assessing the viability of the conservatory contract is the sum of the cost of supervision by the foreman and the cost of the semi-skilled workers.

Step-by-step explanation:

To determine the relevant cost of labor when assessing the viability of the conservatory contract, we need to consider the wages of the foreman and the semi-skilled workers. The foreman will require 15 hours of supervision, with 10 of those hours paid at a rate of £12 per hour for work done outside normal working hours. The remaining 5 hours will be paid at a rate of £10 per hour for work done during normal working hours. So, the cost of supervision by the foreman is (10 hours x £12 per hour) + (5 hours x £10 per hour) = £120 + £50 = £170.

The semi-skilled workers will be required for 150 hours and are currently paid at a rate of £7 per hour. If they are taken off their current jobs, which are normally done by unskilled workers paid at a rate of £5 per hour, those unskilled workers will have to do the jobs at an overtime rate of £6 per hour. Therefore, the cost of using the semi-skilled workers on the conservatory contract is (150 hours x £7 per hour) + (150 hours x (£6 per hour - £5 per hour)) = £1,050 + £150 = £1,200.

The relevant cost of labor when assessing the viability of the conservatory contract is the sum of the cost of supervision by the foreman and the cost of the semi-skilled workers, which is £170 + £1,200 = £1,370. Therefore, the correct answer is none of the options provided.