Wood Guardians, located in Manchester, England, manufactures a chemical used to protect fences, boardwalks, picnic tables, and other wooden structures. Manchester city officials have asked Wood Guardians for a price quote on a special job that must be completed within one week.
Completing the special job will require 100 hours of skilled labor and 50 hours of unskilled labor. Wood Guardians pays their skilled and unskilled employees £525 and
£280, respectively, for 35 hours of work per week. (£ = 5 British Pound, the official currency of the United Kingdom). Because it is the peak of the slow season, Wood Guardians anticipates having excess capacity of 75 skilled and 100 unskilled labor hours in the coming week. Wood Guardians can also hire additional skilled and unskilled labor on an hourly basis; these part-time employees are paid an hourly wage based on the wages paid to current employees.
Wood Guardians has in stock the primary raw material, chromic acid, needed to complete the city's special job. Wood Guardians purchased the chromic acid two months ago for £1,000; however, due to recent price declines the same amount of chromic acid could be purchased today for £800. Finally, Wood Guardians estimates that it would cost them £500 to dispose of the chromic acid (chromic acid is highly toxic, and strict regulations govern the disposal process).
Required:
a. What is Wood Guardians' opportunity cost of labor for completing the city's special job?
b. What is Wood Guardians opportunity cost of materials for completing the city's special job? Assume that Wood Guardians had planned to use the chromic acid on a job to be completed in two weeks. Thus, if Wood Guardians uses the chromic acid on the city's special job, it will need to purchase additional chromic acid.
c. Suppose Wood Guardians purchased the chromic acid for a job that recently was completed. The chromic acid currently in stock is the excess from that job, and Wood Guardians had been planning to dispose of it. Under this scenario, what is Wood Guardians' opportunity cost of materials for completing the city's special job?
d. Continue with the scenario in part (c) above. Suppose that materials and labor comprise Wood Guardians only costs for completing the city's special job. What is the minimum price that Wood Guardians should bid on this job? Do you recommend that Wood Guardians submit a higher bid? Why?