Reference no: EM132933514

ZK has been asked to quote a price for a special job that must be completed within one week.

• The job requires a total of 100 skilled labour hours and 50 unskilled labour hours. The current employees are paid a guaranteed minimum wage of Khs.525 for skilled workers and Khs.280 for unskilled workers for a 35-hour week.
• Currently, skilled labour has spare capacity amounting to 75 labour hours each week and unskilled labour has spare capacity amounting to 100 labour hours each week. Additional skilled workers and unskilled workers can be employed and paid by the hour at rates based on the wages paid to the current workers.
• The materials required for the job are currently held in inventory at a book value of Khs.5,000. The materials are regularly used by ZK and the current replacement cost for the materials is Khs.4,500. The total scrap value of the materials is Khs.1,000.

Problem 1: What is the total relevant cost to ZK of using skilled and unskilled labour on this job?

Option 1: Nil

Option 2: Khs.375

Option 3: Khs.775

Option 4: Khs.1,540