Question

To complete an order for making curtains, Rosie will need to employ three seamstresses for two days at £30 per day. It will also take 5 hours of her time, which she costs out at £10 per hour. She will receive £500 and have to buy materials of £220. If she accepts this order, she will have to turn down another order, which would have generated a contribution of £80. How much contribution will she make?

a) £100
b) £20
c) None
d) £50

Answer 1

Rosie will incur a loss of £30 if she accepts the order for making curtains since her total costs and the opportunity cost are greater than the revenue she would receive from the order.

Step-by-step explanation:

To calculate Rosie's contribution from accepting the order for making curtains, we should start by computing the total costs and revenue, and then determine the opportunity cost of not taking the alternate order. The costs include the payment to the seamstresses, Rosie's labour, and the materials.

To calculate the contribution, subtract the total costs and the opportunity cost from the revenue:

£500 (revenue) - £450 (total costs) - £80 (opportunity cost) = £-30

The negative result indicates that Rosie would not make a contribution; instead, she would incur a loss by accepting this order.