CAF-5 · Chapter 14 · Question 6 of 10
A special order requires 900 hours of labour. The factory is working at full capacity. To complete the order, management must divert workers from their normal regular production. For regular production, workers are paid Rs. 15 per hour and generate a contribution margin of Rs. 5 per hour. What is the relevant opportunity cost per hour of diverting these workers to the special order?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Rs. 20 per hour
Explanation
When labour is at full capacity and must be diverted from other work, the company loses the contribution from that regular work (Rs. 5) AND still has to pay the workers for their time (Rs. 15). The total opportunity cost is Rs. 15 + Rs. 5 = Rs. 20 per hour.
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