The Regent Co. Ltd is developing a new product called Scram, and has, to date, spent £50,000 on this project. Part of this development work has had a spin-off in material handling techniques which could be sold to a firm using similar materials for £20,000. The company is now considering whether to abandon the project, and submits the following information:

Material. The project needs t\vo materials, X and Y. 2,000 kilos of X are already paid for and in store at a cost of £4.50 per kilo and this material is used in currently produced products. Recent sharp rises in material prices mean that the replacement cost would be £5.50 per kilo. Y is a highly specialist material already in store at a cost of £2,000.

If it is not used for the project, it will be sold for at least £3,500.

Labour. Skilled and unskilled labour is used on the project. The skilled labour was specially hired at a cost of £10,000 p.a.,

£5,000. The unskilled labour, which costs £5,000 p.a., will be reabsorbed within the general labour force.

Equipment. Equipment costing £20,000 was bought three years ago for the project, and is being depreciated at £5,000 p.a. over four years.
If sold now the equipment would fetch £2,000, but in a year's time will not be worth anything.
Overhead. The company allocates £2,000 p.a. of general overhead to the project.
Sales. If completed, the company will sell the product patent for £30,000, but not manufacture it for itself.
Required:
Prepare a report showing whether the company should abandon or complete the project.