● Other miscellaneous items. These are expected to cost £250 in total.

Assembly labour is currently in short supply in the area and is paid at £10 an hour. If the order is accepted, all necessary labour will have to be transferred from existing work, and other orders will be lost. It is estimated that for each hour transferred to this contract £38 will be lost (calculated as lost sales revenue £60, less materials £12 and labour £10). The production director suggests that, owing to a learning process, the time taken to make each unit will reduce, from 25 hours to make the first one, by one hour a unit made.

Inspection labour can be provided by paying existing personnel overtime which is at a premium of 50 per cent over the standard rate of £12 an hour.

When the business is working out its contract prices, it normally adds an amount equal to

£20 for each assembly hour to cover its general costs (such as rent and electricity). To the resulting total, 40 per cent is normally added as a profit mark-up.

8.7 295 CHAPTER 8 RELEVANT COSTS FOR DECISION MAKING Required:

(a) Prepare an estimate of the minimum price that you would recommend Rob Otics Ltd to charge for the proposed contract, and provide explanations for any items included.