(Relevant Costs of Labour) Magic Solutions Consultants (MSC) wants to bid for a market research project. The cost estimates on which MSC will base its bid are shown below:
- 200 hours of work in initial data collection and preparation of research questionnaire
- 100 hours can be provided by existing staff who are not currently utilized—their total employment cost is $22 per hour
- 100 hours will have to be provided by temporary staff at a cost of $15 per hour
- MSC’s in-house, existing database resources will be utilized to provide data for the project. The research data that will be used was purchased some months previously at a cost of $2,500. The data have never been used before and are unlikely to be used again. An additional updated report will, however, have to be purchased at a cost of $500.
- Printing and postage of questionnaires will cost $1,000.
- The in-house computer processing facility will process returned questionnaires. The computer facility charges $2,000 for each survey it processes internally.
- The consultancy will have to purchase a specialist software package to undertake the sophisticated statistical analysis required. The software will cost $1,750 and training costs of $500 will be incurred for employees to learn how to use the package. The package may be used again in the future.
- A manager will be involved in the detailed planning, design, and logistics for the research. The manager’s time has been costed at 14 days @ $500 or $7,000, but he is very busy and will have to be remunerated through overtime at an additional cost of $3,500 in order for him to carry out other work that he is committed to complete.
- A partner will supervise the entire project. An estimate of her time has been costed at $1,500, but the consultancy will not incur any additional costs for the project.
- Calculate the cost for the market research project based on the full costs for the project.
- Calculate the relevant cost of the market research project.
- What are the standard costs identified in this case? What are the marginal or variable costs identified in this case? Explain why there is a difference between the costs calculated in (a) and (b).