CAF-5 · Chapter 14 · Question 5 of 10
A new contract requires 200 hours of direct labour in Department 1. The workforce in this department is paid a fixed weekly wage of Rs. 16 per hour. Currently, Department 1 has spare labour capacity (idle time) and there are no plans to lay off any workers. What is the relevant cost of labour for this contract in Department 1?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 0
Explanation
The workers are paid a fixed wage regardless of whether they are working or idle. Because the department has spare capacity, putting them to work on the new contract incurs no additional cash flow. Thus, the relevant cost is zero.
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