DLW is a company that builds innovative, environmentally friendly housing. DLW’s houses use high quality materials and the unique patented energy saving technology used in the houses has been the result of the company’s own extensive research in the area.
DLW is planning to expand into another country and has been asked by a prominent person in that country for a price quotation to build them a house. The Board of Directors believes that securing the contract will help to launch their houses in the country and has agreed to quote a price for the house that will exactly cover its relevant cost.
The following information has been obtained in relation to the contract:
1 The Chief Executive and Marketing Director recently met with the potential client to discuss the house. The meeting was held at a restaurant and DLW provided food and drinks at a cost of $375.
2 Twelve hundred kg of Material Z will be required for the house. DLW currently has 550kg of Material Z in its inventory purchased at a price of $58 per kg.
Material Z is regularly used by DLW in its houses and has a current replacement cost of $65 per kg.

The resale value of the Material Z in inventory is
$35 per kg.
3 Four hundred hours of construction worker time are required to build the house. DLW’s construction workers are paid an hourly rate of $22 under a guaranteed wage agreement and currently have spare capacity to build the house.
4 The house will require 90 hours of engineer time. DLW engineers are paid a monthly salary of $4,750 each and do not have any spare capacity. In order to meet the engineering requirement for the house, DLW can choose one of the two options:

(i) Pay the engineers an overtime rate of $52 per hour to perform the additional work.
(ii) Reduce the number of engineers’ hours available for their existing job, the building of Product Y. This would result in lost sales of Product Y.
Summary details of the existing job the engineers are working on:
Information for one unit of Product Y

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Sales revenue Variable costs Engineers' time required per unit $4,860 $3,365 30 hours