Smiths Ltd is a family-run business that manufactures specialised building plastics. It began trading in 2010. The company is facing constraints on both labour and materials due to a current shortage in supply of skilled labour and political unrest in the country of an oversea supplier. It cannot produce enough skirting boards and drainage pipes to satisfy market demand. The maximum labour hours available are 17,280 and the maximum materials available are 20,640 kg. Each skirting board takes 18 hours to make and uses 24 kg of material. Each drainage pipe takes 24 hours to make and uses 12 kg of material. Labour is paid at a rate of 30 per hour and materials cost 22.5 per kg. The selling price for skirting board is 1,550 and the selling price for drainage pipe is 1,650. Variable overheads are charged at 15 per labour hour. Fixed costs are 50,000 per annum. Required:

b.Explain the meaning of a shadow price. Calculate the shadow price for labour for Smiths Ltd and explain how this could be used to make decisions in the business.