Mr. Ankit  has been asked by  government authority  to repair the roofs The job must be completed in twenty working days anyhow and government authority of Jaipur has offered Rs.1,65,000 for the job. Mr. Bansal has estimated that the job requires seventy-five work days, but he can only use his regular three workers for the job because it is a very busy period for the industry as a whole. Fortunately, Mr. Bansal's son, Vinay. can take time off from his regular job (paying Rs. 1100 per day) to help complete the work. Mr. Bansal has estimated that, for his regular employees, the cost per work day is Rs.1500.
 The materials cost Rs. 50,000 originally, but these costs have since increased by an average of 5 per cent. Additional materials costing Rs. 30.000 are also required.

Mr. Bansal has done the costing analysis of the job as follows:

Revenue

Rs.165,000

Costs

Labour

Rs. 90,000

Materials

Rs. 80,000

Total costs

Rs.170,000

Profit

(-) Rs.5,000

On the basis of the above analysis Mr Bansal rejects the job.

Questions

1 Prepare a revised cost estimate for the job, taking into account opportunity costs, replacement costs and incremental costs. Assume that Mr Bansal considers the job from the viewpoint of a family business, including himself and his son together. 2 Advise Mr Bansal regarding whether he should accept the job

To assess whether Mr. Bansal should accept the job, let's first prepare a revised cost estimate by considering all relevant costs, including opportunity costs, replacement costs, and incremental costs.

### Step 1: Breakdown of the Costs

#### 1. **Labour Costs**
- **Regular workers**: The job requires 75 workdays, and Mr. Bansal has 3 workers. 
  \[
  \text{Total Labour Cost} = 3 \text{ workers} \times 75 \text{ workdays} \times Rs. 1500/\text{day} = Rs. 337,500
  \]
- **Vinay's Opportunity Cost**: Vinay earns Rs. 1100 per day at his regular job. If he helps with the project, his opportunity cost is:
  \[
  \text{Vinay's Cost} = 20 \text{ workdays} \times Rs. 1100/\text{day} = Rs. 22,000
  \]

#### 2. **Materials Costs**
- **Original Material Cost**: Rs. 50,000
- **Incremental Increase**: 5% increase on Rs. 50,000
  \[
  \text{Incremental Cost} = Rs. 50,000 \times 0.05 = Rs. 2,500
  \]
- **Additional Materials**: Rs. 30,000
  \[
  \text{Total Materials Cost} = Rs. 50,000 + Rs. 2,500 + Rs. 30,000 = Rs. 82,500
  \]

#### 3. **Total Costs**
Adding up all costs:
\[
\text{Total Labour Cost} = Rs. 337,500 + Rs. 22,000 = Rs. 359,500
\]
\[
\text{Total Costs (including materials)} = Rs. 359,500 + Rs. 82,500 = Rs. 442,000
\]

### Step 2: Calculate the Profit or Loss
- **Revenue**: Rs. 165,000
- **Total Costs**: Rs. 442,000
- **Profit/Loss**:
  \[
  \text{Profit/Loss} = \text{Revenue} - \text{Total Costs} = Rs. 165,000 - Rs. 442,000 = - Rs. 277,000
  \]

### Step 3: Analysis and Recommendation

Given the revised cost estimate:

- The job would result in a loss of Rs. 277,000, which is far more than the initial estimate of a Rs. 5,000 loss.
- The opportunity cost of using Vinay, the increased material costs, and the insufficient labor resources all contribute to the significant loss.

**Recommendation**: Mr. Bansal should reject the job. The financial loss is substantial, and the project does not offer any realistic profit potential even when considering it as a family business.

### Relative Questions
1. What would happen if Mr. Bansal could reduce the labor costs? How would that affect the profitability?
2. Can Mr. Bansal outsource part of the job to make it profitable? What would be the cost-benefit analysis of that decision?
3. How would a further increase in material costs impact the final profit or loss?
4. Is there any possibility of negotiating a higher payment with the government authority? How would an increase affect the decision?
5. Could extending the timeline (if possible) reduce costs, and how might that impact the feasibility of the job?

**Tip**: When evaluating project feasibility, always consider both direct and opportunity costs to get a true picture of potential profitability.

Explore the detailed analysis and recommendation for Mr. Bansal regarding whether to accept the government authority's roof repair job offer. Includes revised cost estimates, profit and loss calculations, and advice on opportunity costs and incremental costs.

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