a) Identify the incremental, sunk and unavoidable costs in the above scenario.

Incremental costs    =  Labour,  supervision and materials.

Unavoidable costs  =  Overhead charge

b) Advise the company as to whether they should continue to manage their own cleaning or contract out the work.

This requires comparing the relevant costs and benefits of both options as follows. If the hotel does decide to out–source the work the additional revenues expected as a result of this decision can either be set off against the cost of outsourcing ( as done below) or added as an opportunity cost to the cost of the in-house option

Based on the financials the business should go with the out-sourcing option. However management should be mindful of any non-financial factors which could sway the decision. For example factors such as

1. Re-deployment of the existing cleaners.
2. The effect of closure on staff morale.
3. Labour union objections
4. Quality and reliability of the cleaning contractors