work is rather slack and three employees are occupied in carrying out extensive repairs to Kofi Abebrese's own house. Kofi owns a warehouse next to the factory, which had been used as a factory store, in the past. It is now let out on a renewable annual lease of GH¢600. A new building company, Allied Consult, which specializes in the produc
Kofi Abebrese runs a small industrial company that specializes in the production of high-standard windows for housing estates. A worker is paid GH¢0.9 per hour and can produce two windows with an hour. Each window uses a frame costing GH¢1 and incurs a variable overhead of GH¢0.7. Each window sells for GH¢3. Currently, due to the economic condition, work is rather slack and three employees are occupied in carrying out extensive repairs to Kofi Abebrese's own house. Kofi owns a warehouse next to the factory, which had been used as a factory store, in the past. It is now let out on a renewable annual lease of GH¢600. A new building company, Allied Consult, which specializes in the production of prefabricated houses has asked Kofi if he would be interested in accepting a contract for GH¢30,000 which will be for a year initially, to produced molded internal building sections. Kofi estimates that the contract will take 13,200 hours of works, or the work of five men for a year, and that variable overheads would be GH¢10,000. The work would have to replace 9,600 hours of existing work. He estimates that the material required for the contract would cost GH¢6,000. Alternatively, the work could be carried out in the warehouse; the lease is due to be renewed next month. Kofi thinks this would involve the company in an extra cost of GH¢300 for heating and the cost of power would increase by GH¢500. He would hire two new workers and pay them GH¢2,200 each per annum.If the contract was carried out in the warehouse, the other three workers would be those at present repairing Kofi's house. The three workers are paid GH¢7,70 per annum in total and it would cost GH¢2,500 to get an outside contractor to finish the house repairs.
Required
a. Advise Kofi on what to do.
b. Consider the long-term implications this decision might have on Kofi's business.
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