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11-33 Opportunity costs and relevant costs. Jason Wu operates Exclusive Limousines, a fleet of IO limousines usedfor weddings. prams. and business events in Washington, D.C. Wu charges customers a tlatfee of $250 per car taken on contract plus an hourly fee of $00. His income statement for May follows: Revenue [200 contracts X $250) + {1,250 hours X $80l $150,000 Operating expenses: Driver wages and benets ($35 per hour x 1,250 hours) 43,150 Depreciation on limousines 19,000 5 Fuel costs ($12.30 per hour x 1,250 hours) 16,000 5 Maintenance 18,400 'I Liability and casualty insurance . 2,500 ' Advertising 10,500 Administrative exp enses . 24,200 . A Total expenses 134,350 Operating income 3 15,650 3 All expenses-are fixed, with the exception of driver wages and benets and fuel costs, which are 5 both variable per hour. Durin Ma Ethe companWWumML_ , Eiclusive Limousines will be operating near capacity. Shelly Worthington, a prominent Washington social- _' , its, has asked Wu to bid on a large charity event she is hosting in late June. The limousine company she had hired has canceled at the last minute, and she needs the service of five limousines forfour hours each. She will only hire Exclusive Limousines if they take the entire job. Wu checks his schedule and finds that he only has three limousines available that day. 1. If Wu accepts the contract with Worthington, he would either have to la) cancel two prom contracts each for 1 car for 6 hours or (bl cancel one business event for three cars contracted for two hours each. What are the relevant opportunity costs of accepting the Worthington contract in each case? Which contract should he cancel? _ 2. Wu would liketo win the bid on the Worthington job because ofie poten'o'al for lucrative future busi ness. Assume that Wu cancels the contract in part1 with the lowest opportunity cost, and assume that the three currently available cars would go unrented if the company does not win the bid. What is the lowest amount he should bid on the Worthington job? . 3. Another limousine company has offered to rent Exclusive limousines two additional cars for$300 each - ,, ._ _ . per day. Wu would still need to pay for fuel and driver wages on these cars for the Worthington job. Should Wu rentthe two carsto avoid canceling either ofthe-other two contracts