F u n d a m e n t a ls L e v e l - S k ills M o d u le , P a p e r F 5 P e rfo rm a n c e M a n a g e m e n t 1 (a )

Ju n e 2 0 1 0 A n s w e r s

C o s t s a n d q u o t e d p r ic e s fo r t h e G C a n d t h e E X u s in g la b o u r h o u r s t o a b s o r b o v e r h e a d s : M a t e r ia ls Labour O v e rh e a d s T o ta l co st Q u o t e d p ric e GC $ 3 ,5 0 0 4 ,5 0 0 5 0 0 h r s x $ 1 5 /h r 3 0 0 h r s x $ 1 0 /h r (W 1 ) 5 0 0 h r s x $ 1 0 /h r 1 1 ,0 0 0 1 6 ,5 0 0 3 ,0 0 0 5 ,0 0 0 2 0 ,5 0 0 3 0 ,7 5 0 EX $ 8 ,0 0 0 7 ,5 0 0

3 0 0 h r s x $ 1 5 /h r

(W 1 ) . O v e r h e a d a b s o r p tio n r a t e is c a lc u la t e d a s $ 4 0 0 ,0 0 0 /4 0 ,0 0 0 h r s = $ 1 0 /h r (b ) C o s t s a n d q u o t e d p r ic e s f o r t h e G C a n d t h e E X u s in g A B C t o a b s o r b o v e r h e a d s : M a t e r ia ls Labour O v e rh e a d s S u p e rv is o r P la n n e r s P ro p e rty T o ta l co st Q u o t e d p ric e (W 2 ) S u p e rv is o r P la n n e r s P ro p e rty (W 3 ) C o s t p e r d riv e r (W 2 ) GC EX (c ) S u p e r v is o r $180 180 x 1 = 180 1 8 0 x 6 = 1 ,0 8 0 P la n n e r $280 280 x 1 = 280 2 8 0 x 5 = 1 ,4 0 0 P ro p e rty $6 6 x 3 0 0 = 1 ,8 0 0 6 x 5 0 0 = 3 ,0 0 0 C o sts 9 0 ,0 0 0 7 0 ,0 0 0 2 4 0 ,0 0 0 N u m b e r o f d r iv e r s 500 250 4 0 ,0 0 0 C o s t p e r d r iv e r 180 280 6 GC $ 3 ,5 0 0 4 ,5 0 0 5 0 0 h r s x $ 1 5 /h r ( W 2 ) /( W 3 ) ( W 2 ) /( W 3 ) ( W 2 ) /( W 3 ) 180 280 1 ,8 0 0 1 0 ,2 6 0 1 5 ,3 9 0 EX $ 8 ,0 0 0 7 ,5 0 0 1 ,0 8 0 1 ,4 0 0 3 ,0 0 0 2 0 ,9 8 0 3 1 ,4 7 0

3 0 0 h r s x $ 1 5 /h r

The p r ic in g p o lic y is a m a tte r fo r BBB to d e c id e . They c o u ld e le c t h e p r ic e o f t h e G C w o u ld f a ll b y a r o u n d 7 % in lin e w it h t h e c o s t s . T h is s h o u ld m a k e t h e m m o r e c o m p e t it iv e in t h e T h e y c o u ld a ls o r e d u c e t h e p r ic e s b y a lit t le le s s t h a n 7 % ( s a y 5 % ) in o r d e r t o in c r e a s e in t e r n a l m a r g in s a lit t le . It is p o s s ib le t h a t t h e is s u e lie s e ls e w h e r e . If t h e q u a lit y o f t h e w o r k o r t h e r e p u t a t io n a n d r e lia b ilit y o f t h e b u ild g o o d r e p u t a t io n fo r E X b u t n o t fo r G C , b u t m o r e lik e ly t h a t a p o o r r e p u t a t io n w o u ld a ff e c t a ll p r o d u c t s . E q u a lly p e r fo r m a n c e . T h e s e t o o w ill n o t b e c o r r e c t e d b y m e r e ly r e d u c in g p r ic e s . B B B is in c o m p e t it io n a n d it p e r h a p s n e e d s t o r e f le c t t h is in it s p r ic in g m o r e ( b y g o in g r a t e p r ic in g ) a n d n o t s e e k B B B c o u ld t r y t o p e n e t r a t e t h e m a r k e t b y p r ic in g s o m e jo b s c h e a p ly t o g a in a f o o t h o ld . O n c e t h is h a s b e e n d o n e t

It is a ls o p o s s ib le t h a t t h e w a y s a le s m e n d is c u s s o r s e ll t h e ir p r o d u c t s fo r t h e G C is n o t a d e q u a t e s o t h a t in s o m e w

T h e p r ic e o f t h e E X w o u ld a ls o n e e d c o n s id e r a t io n . T h e r e is n o in d ic a t io n o f p r o b le m s in t h e s e llin g o f t h e E X a n d f ig u r e s in m y a n s w e r t h e p r ic e g o e s u p f o r a t y p ic a l e x t e n s io n t o $ 3 1 ,4 7 0 f r o m $ 3 0 ,7 5 0 a r is e o f $ 7 2 0 . T h is d o e s n

T h e r e lia b ilit y a n d r e p u t a t io n o f a b u ild e r is p r o b a b ly m o r e im p o r t a n t t h a n t h e p r ic e t h a t t h e y c h a r g e fo r a jo b a n d

11

(d ) M a r g in a l c o s t s a r e t h o s e c o s t s th a t a r e in c u r r e d a s a c o n s e q u e n c e o f th e jo b b e in g u n d e r ta k e n . In t h is c a s e t h e y w o n ly t h e m a t e r ia ls a n d t h e la b o u r . If o v e r h e a d s a r e in c lu d e d t h e n t h is is k n o w n a s t o t a l a b s o r p t io n c o s t in g . O v e r h e a d s a r e fo r m a n y b u s in e s s e s f ix e d b y n a t u r e a n d h e n c e d o n o t v a r y a s t h e n u m b e r o f jo b s c h a n g e s . In a t r b e a r b it r a r y w it h lit t le t r u e m e a n in g b e in g a d d e d t o t h e e n d r e s u lt . T h e o v e r h e a d a b s o r p t io n r a t e ( O A R ) is m e m a r g in a l c o s t in g ) w o u ld a ls o a v o id t h e p r o b le m o f t h e u n c e r t a in t y o f b u d g e t v o lu m e . B u d g e t v o lu m e is n e e d e d in

T h e m a r g in a l c o s t ( M C ) is m o r e u n d e r s t a n d a b le b y m a n a g e r s a n d in d e e d c u s t o m e r s a n d a s w it c h a w a y fr o m t o t a l f o r t h e c o s t a llo c a t io n s t h e n t h e y w o u ld s t ill h a v e t o b e c o v e r e d b y w a y o f a b ig g e r m a r g in a d d e d t o t h e c o s t s . In t A m o re m g iv e s r is e th e n be t h e b e n e fit o f a ll In th e is a d o p te d .

o d e rn v ie w p o in t is th a t a c t iv it y cau ses co sts to e x is t . For ex to th e need fo r a s u p e r v is o r and th e r e fo re , fo r h is c o sts. I d ir e c t ly tra c e d to p ro d u c ts, hence e r a d ic a t in g th e need fo r c o s t s b e in g c o v e r e d , r a t h e r t h a n t h e p o t e n t ia l s h o r t f a ll t h a t c a n a r is e if m a r g in a l c o s t p lu s p r ic in g ru n b u s in e s s e s have to cover a ll co sts in c lu d in g f ix e d

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