Question

CASE 1-1 LOCAL 635 [LO 2, 51 Local 635 represents kitchen workers at hotels in sev- plained, "Look, that dinner goes for $32 on the menu so assigning eral southern cities. Part of their labor agreement states that a cost of $22 represents a very good value to the kitchen workers workers "shall receive one free meal per shift up to a cost of $12, The contention that the meal only costs $8 is nonsense. True, the with any cost over $12 being deducted from wages paid to said meat costs $7 and the salad ingredients cost S1, but there's also the employee." labor costs related to preparing the meal and the numerous over A labor dispute arose at the Riverside Hotel shortly after it was head costs, like the cost of the oven that the prime rib is cooked in. opened in June. Kitchen workers who ate dinner on the late shift That oven cost more than $20,000. And there's heat, light, power, found that their wages were reduced by $10 for each meal they etc. Each meal we prepare should be assigned part of these over- consumed at the hotel during their dinner break. Josh Parker, a head costs. And don't forget that when the worker finishes his or line cook, stated the widely held belief of the workers. "There's her meal, someone has to clean up. That costs money too. When no way these dinners cost the Riverside Hotel $12 to make, let you add up all of these items, a prime rib dinner easily adds up alone $22. This is just another case of management trying to rip us to $22" off. Take last night. I had the prime rib dinner. The piece of meat cost about $7 and the salad less than $1. That's only $8 in total. Really, there aren't any other costs to speak of. The cook, well, he's REQUIRED going to be working in the kitchen and getting paid for 8 hours whether he makes my meal or not. This claim that my meal cost a List examples of costs at the Riverside Hotel that are variable fixed, and sunk. Provide an example of an opportunity cost. Management of the Riverside Hotel sees the situation differ- b. What is the source of conflict between labor and manage- ently. Take the case of Josh's dinner. In presenting the hotel's case ment? What changes would you recommend in the wording of to a labor arbitration board, Sandy Ross, manager of the hotel, ex the labor agreement?

Answer 1

a . Variable cost at Riverside hotel are (i) cost incurred on piece of meat amounting to $7 and (ii) .Salad costing $1.

Fixed cost are cost are cost related to preparing of meal, and the cleaning cost that is incurred as and when worker finishes his or her meal.

Sunk cost are the overhead cost like the cost of the oven that the prime rib is cooked in and heating, lighting, Power etc all are sunk cost as they have already been incurred and is of no use in decision making.

b . Source of conflict is the indirect cost being charged by the management in the cost of food like overhead cost, cleaning cost etc. which is increasing the cost of the meal for the workers. following changes can be made in labor agreement :-

Workers shall receive a discount of $12 for one meal per shift on the cost of meal. Cost of meal for this purpose shall in addition to direct cost of the meal will also includes indirect cost like overead cost, power , electricity, lighting , cleaning etc. incurred on consumption of meal allocated on a reasonable basis.