Performance management Topic 2.1: Short term decision making technique

Question 8 Odd Ltd manufactures special purpose bolts to customers' specication. The highly-skilled labor force is always working to full capacity and the budget for the next war is as follows: $ $ Sales 40,000 Direct Materials 4,000 Direct Wages (3,200 hours @ $5) 16,000 Fixed Overheads 10,000 (30,000) Prot 10,000 An enquiry is received from XY Ltd for a single bolt, which would use $60 of direct materials and 40 labor hours. Required: a) Explain the term 'opportunity cost' and show how it applies to the above scenario. b) What is the minimum price to quote to KY Ltd? c) Would the minimum price be different if spare capacity for direct labor was available but direct materials were subjected to a quota of $4,000 per-year