Question 6 (7 marks)

Ezy Fixit Ltd has been asked to quote a price for a special job that must be completed within one week. The job requires a total of 90 skilled labour hours and 80 unskilled labour hours. The current employees are paid a guaranteed minimum wage of $525 for skilled workers and $280 for unskilled workers for a 35-hour week. Currently, skilled labour has spare capacity amounting to 70 labour hours each week and unskilled labour has spare capacity amounting to 100 labour hours each week. Additional skilled workers and unskilled workers can be employed and paid by the hour at rates based on the wages paid to the current workers.

The materials required for the job are currently held in inventory at a book value of $5,000. The materials are regularly used by Ezy Fixit Ltd and the current replacement cost for the materials is $4,500. The total scrap value of the materials is $1,000.

Required:

a) What is the total relevant cost to Ezy Fixit Ltd of using skilled and unskilled labour on this job? (2 marks)

b) What is the relevant cost of using the materials in inventory on this job? Justify your answer. (2 marks)

c) Explain how short-term decisions differ from long-term decisions of a business and provide examples to support your answer.(3 marks)