Mr Brewster operates a roofing company in London and has been asked by the local government authority of Merton to repair the roofs of several of their properties damaged in a recent storm. The job must be completed during the next four weeks (twenty working days), and Merton has offered 16,000 for the job. Mr Brewster has estimated that the job requires seventy-five work days, but he can only use his regular three workers for the job because it is a very busy period for the industry as a whole. Fortunately,

Mr Brewsters son, Will, can take time off from his regular job (paying 80 per day) to help complete the work. Mr Brewster has estimated that, for his regular employees, the cost per work day is 150. This consists of a wage of 100 (which is only paid if the employee is working) and 50 in contributions to the government (which are paid annually regardless of how many days the employees work).

Brewster Roofing has all the equipment necessary for the job and has some of the materials available in inventory. The materials cost 5,000 originally, but these costs have since increased by an average of 5

per cent. Additional materials costing 3,000 are also required.

Mr Brewster has costed the job as follows:

Revenue Costs Labour Materials Total costs Profit

16,000

9,000

8,000 17,000

(1,000)

On the basis of the above analysis Mr Brewster rejects the job.

Questions

1 Prepare a revised cost estimate for the job, taking into account opportunity costs, replacement costs and incremental costs. Assume that Mr Brewster considers the job from the viewpoint of a family business, including himself and his son together.

2 Advise Mr Brewster regarding whether he should accept the job, stating any assumptions involved in your analysis.

are all illustrated in the following case study. Case study 6.1: Brewster Roofing Mr Brewster operates a roofing company in London per cent. Additional materials costing 3,000 are also and has been asked by the local government authority required of Merton to repair the roofs of several of their Mr Brewster has costed the job as follows: properties damaged in a recent storm. The job must be completed during the next four weeks (twenty Revenue 16,000 working days), and Merton has offered 16,000 for the costs Labour 9,000 job. Mr Brewster has estimated that the job requires Materials E8,000 seventy-five work days, but he can only use his regular Total costs E17000 three workers for the job because it is a very busy Profi (1,000) period for the industry as a whole Fortunately, On the basis of the above analysis Mr Brewster rejects Mr Brewster's son, Will, can take time off from his the job. regular job (paying 80 per day) to help complete the work. Mr Brewster has estimated that, for his regular Questions employees, the cost per work day is150. This consists of a wage of 100 (which is only paid if the employee 1 Prepare a revised cost estimate for the job, taking is working) and 50 in contributions to the into account opportunity costs, replacement costs government (which are paid annually regardless of and incremental costs. Assume that Mr Brewster how many days the employees work). considers the job from the viewpoint of a family Brewster Roofing has all the equipment necessary business including himself and his son together. for the job and has some of the materials available in 2 Advise Mr Brewster regarding whether he should inventory. The materials cost 5,000 originally, but accept the job, stating any assumptions involved in these costs have since increased by an average of 5 your analysis