Brewster Roofing
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 Brewster's 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:
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Revenue
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£16,000
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Costs
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Labour
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£9,000
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Materials
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£8,000
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Total costs
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£17,000
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Profit
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(£1,000)
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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.