ACCA PM · Chapter 8 · Question 4 of 10
A special order needs 200 hours of skilled labour. Skilled workers are paid $15 per hour and are fully employed making product Q, which earns a contribution of $12 per labour hour after charging labour costs. If the order is accepted, production of Q will be reduced. What is the relevant cost of the skilled labour for the order?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $5,400
Explanation
Labour is scarce, so diverting it to the order costs both the wage and the contribution lost from product Q. Relevant cost per hour = $15 + $12 = $27. Total = 200 x $27 = $5,400. Adding the wage on top of a contribution figure that already includes it ($15 + $27 = $42 per hour, giving $8,400) double-counts the labour cost.
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