Hi there! I am just having some issues grasping the concept of Relevant Costs of Labour in Managerial Accounting and was wondering if anyone could help. My professor suggested a scenario that I should practice with, but I am still having troubles understanding it completely. Here is the scenario:

A construction company has been asked to tender for a job to

build and install a large customized shed. the construction company estimator has calculated the following costs associated with satisfying the tender:

Variable labour to build the shed in the factory: 25 hours. The cost of staff is $30 per hour, including all payroll-related costs; however, the construction company has insufficient work at the moment to keep its employees busy.

Delivery/installation: 4 hours. This will have to be subcontracted at $50 per hour.

Supervision: the construction company always charges 20% of the direct labour in the factory as the cost of supervision.

This is an allocation of the costs of the factory manager, store-man, and administration staff.

Materials:

• The timber needed for the shed is regularly used in the factory. Sufficient timber is held in stock to build the shed. The cost of the timber from the stock records is $1,000, but it will cost $1,100 to replace at current prices.

• The shed also needs a metal frame. A suitable frame was purchased 2 years ago for $750 but has never been used. A supplier who saw the frame last week offered Harris $500 for it.

• Indirect materials (paint, fixings, etc.) will cost about $100.

Overhead:

• The construction company uses a simple method of fixed overhead allocation, charging $250 for every job produced by the factory.

Other costs:

• Because the customer requires quality certificates for everything it buys, the construction company will need to have the completed shed inspected by a registered inspector at a cost of$175.

My main questions I need guidance in based on the information given above, is

1) How to calculate both the total product cost (using standard accounting practices) and the relevant

cost for this custom job.

2) How to determine what is the lowest price at which the tender should be submitted, assuming that the construction company wants to make a profit of $200? What will be the impact of such a price on profits reported in the management profits report? What are the opportunity costs of not undertaking this job?

3) Would the lowest price change if the construction company's employees were fully employed with other projects and the construction company would need to hire additional staff to handle the job at the same rate as existing employees? Why?