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Hi,
They give me information:
” General overheads cost incurred when taking the construction contract is 5,200 hour $1/hour”
note : the general overheads represent for the rental cost of the John’s storage yard. If he doesn’t undertake the job above, he can rent it out to a competitor who will pay him a rent of 500$/week for 20 week periodDo the rental cost in this case represent for the fixed cost ( sunk cost) or the cost will be the incremental cost, incurred in the future when undertaking the contract.
Fathmath is correct (although he should not be answering in this forum because is it Ask the Tutor Forum 🙂 )
The general overheads are not relevant – they will occur anyway.
The $500 a week is relevant as an opportunity cost (lost rental because of doing the contract).
(Fixed costs and sunk costs are not the same thing. Sunk cost is when the money has already been spent. Fixed costs are different – they are only relevant if the total fixed cost changes because of doing a contract.)
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