Morris Plumbing provides plumbing services to residential customers from Monday through Friday. Ken Morris, the owner, believes that it is important for his employees to have Saturday and Sunday off to spend with their families. However, he also recognizes that this policy has implications for profitability, and he is considering staying open on Saturday.
Ken estimates that if his company stays open on Saturday, it can generate $2,000 of daily revenue each day for 52 days per year. The incremental daily cost will be $600 for labor, $400 for parts, $40 for transportation, and $100 for office staff. These costs do not include a share of monthly rent, or a share of depreciation related to office equipment.
Ken is determined not to have employees work on Sunday, but he would like to know the opportunity cost of not working on Saturday.
Required:
Provide Ken with an estimate of the opportunity cost, and explain why you do not have to consider rent or depreciation of office equipment in your estimate.