Hinkley plc., which is UK based, has been asked to provide a minimum price quote for a small-scale three-month project. The following resources are required:

1,000 kg of material The current purchase price of the material is 5 per kg. Hinkley Inc. bought 2,500 kg of this material for another project last year at 4 per kg but only 2,000 kg was used, the remainder being currently held in inventory. The company has no other use for this material in future and could sell it for 2 per kg.

Processing machine This can be leased for 1,000 per week from a supplier who would guarantee its availability when it is required. It will be required for eight weeks. The machine incurs running costs of 500 per week, paid by the machine user. Hinkley depreciates all non-current assets on a straight-line basis over four years.

800 hours of unskilled labour Required labour can be recruited at 14 per hour. Alternatively, some employees currently working on other projects within Hinkley (costing 12 per hour) could be transferred to this project. If these existing employees were transferred to this project, they would need to be replaced on their existing project work by new employees at a cost of 13 per hour.

Supervision The project would need to be supervised and it is estimated that there would be a total of 200 hours of supervision required during the year. One of the existing supervisors (who earns a salary of 75,000 per year for working 1,820 hours and is not paid for overtime) could undertake this work. She would have to work 70 hours overtime during the year to carry out the required supervision on this project in addition to performing her existing duties. If this project goes ahead the supervisor will be paid a bonus of 1,500, which would not be paid if the project is not undertaken.

1. What is the relevant cost (in ) of material for the project? Show all workings.
2. What is the relevant cost (in ) of leasing and operating the processing machine for the project? Show all workings.
3. What is the relevant cost (in ) of unskilled labour for the project? Show all workings.
4. Which of the factors in the paragraph regarding the cost of supervision for the project is/are not relevant and why?
5. In relation to relevant cost concepts in decision making, explain briefly why annual depreciation is not a relevant cost.