Question 1a A contract is under consideration that requires 600 labour hours to complete. There are 350 hours to spare capacity. The remaining hours for the contract can be found either by weekend overtime working paid at double the normal rate of pay or by diverting labour from the manufacturing the product QZ. If the contract is undertaken and labour is diverted, then sales of product QZ will be lost. Product QZ takes three labour hours per unit to manufacture and makes a contribution of Rs.12 per unit. The normal rate of pay of labour is Rs.9 per hour. Required: What is the total relevant cost of labour for the project?

Question 1b

A company is evaluating a project that required the following types of material. MATERIAL IN STOCK NEEDED FOR CONTRACT PURCHASE PRICE OF STOCK (RS.) CURRENT PURCHASE PRICE (RS.) CURRENT RESALABLE PRICE (RS.) A 100 1,000 1.10 3.00 2.00 B 1,100 1,000 2.00 0.90 1.00 C --- 100 --- 6.00 --- D 100 200 4.00 3.00 2.00 E 50,000 5,000 0.18 0.20 0.25 F 1,000 3,000 0.90 2.00 1.00 Material B and E are used regularly in the company. Material A could be sold to a local sculptor, if not used for the contract. Material A and E can be used for other purpose, such as property maintenance. Company has no use for material D and F, the stocks of which are obsolete. Required: Calculate the relevant cost of each material.