Reference no: EM132493127

Question - i. A garage business has an old car that it bought several months ago. The car needs a replacement engine before it can be driven. It is possible to buy a reconditioned engine for £300. It would take seven hours for the engine to be fitted by a mechanic who is paid £12 an hour. At present the garage is short of work, but the owners are reluctant to lay off any mechanics or even to cut down their basic working week, because skilled labour is difficult to find and an upturn in repair work is expected soon.

The garage paid £3,000 to buy the car. Without the engine it could be sold for an estimated £3,500.

Required - What is the minimum price at which the garage should sell the car with a reconditioned engine fitted? Provide justifications to your answer.

ii. The Manager of the Garage has recently said: "We must continue with our Garage business as only one year ago we purchased some special equipment to be used exclusively for the Garage. The equipment cost £100,000, it cannot be resold or used elsewhere and if we cease business we will have to write off the written down value which is £80,000". Draft a brief reply to the Manager commenting on his statement.