3. A contractor has been asked to quote for a job and has the following information available about the costs: Item Detail P Direct Materials Bricks 200,000 at P100 per thousand. 20,000 Note 1 200,000 at P120 per thousand. 24,000 Other Materials 5,000 Note 2 Direct Labor Skilled 3,200 hrs at P12 per hour 38,400 Note 3 Unskilled 2,000 hrs at P6 per hour 12,000 Note 4 Other Costs Scaffolding hire 3,500 Note 5 Depreciation of general purpose machinery 2,000 Note 6 General overheads 5,200 hrs at P1 per hour 5,200 Note 7 Plans 2,000 Note 8 Total Cost 112,100 Profit 22,420 Note 9 Suggested Price 134,520 Notes: 1. The contract requires 400,000 bricks of this standard type. The contractor has 200,000 already in stock and will need to buy 200,000. The 200,000 at P100 per 1,000 in the quote above were bought at that price earlier in the year. The current replacement cost for this type of brick is P120 per 1,000. If the bricks are not used on this project the contractor is confident that he will be able to use them later on in the year. 2. This is the purchase price of other materials that will be bought in as required. 3. The contractor intends to work 800 hours of the skilled work himself and hire the rest in on an hourly basis at P12 per hour. If the contractor does not take on this job he can either work for other contractors at P12 per hour or complete urgently required work to his own house for which he has been quoted P12,000 by another contractor. AE313/jecastillo/2021 Page 5 4. The contractor has 4 unskilled laborers employed on a contract guaranteeing them 40 hours per week at P6 per hour. They are currently idle and have spare time available to complete the job. 5. This is the estimated cost of hiring scaffolding. 6. The job will take 20 weeks and the machine will not be used on any other job if this job is not taken on. 7. This represents the cost of the storage yard used by the contractor. If this is not used it can be rented out to a competitor for the 20 week period at a rent of P500 per week. 8. This is the cost of drawing up the plans for the project. These were drawn up several weeks ago. 9. A mark up of 20% is added to alljobs. Required: (i) Explain how each item described above should be treated. (ii) Using relevant costing principles, calculate the lowest price that the contractor could quote for the building work. Solution Note 1 2 3 4 5 6 7 8 9 Treatment The bricks are used regularly and replaced so the relevant cost is the replacement cost of P120 per 1,000. AE313jecastillo 2021