Problem: Concorde Ltd has been asked to quote a price for an order of 8 units of Product Delta. Making this product will require skilled labour, which is currently in short supply and is paid £15 an hour. If the order is accepted, all necessary labour will have to be transferred from existing work. As a result, other orders will be lost. It is estimated that for each hour transferred to this contract £39 will be lost (calculated as lost sales revenue £70, less materials £16 and labour £15). The production manager believes that, owing to a learning process, the time taken to make each unit will reduce, from 20 hours to make the first one, by one hour a unit made. (That is 20 hours to make the ?rst one, 19 hours to make the second, 18 hours to make the third one and so on.)
What is the total relevant cost of skilled labour for the purposes of the order?