ICAEW BIP · Chapter 12 · Question 3 of 7
A special order needs 200 hours of skilled labour. Skilled workers are paid £18 per hour and are fully employed on other work, which earns a contribution of £10 per labour hour after charging labour cost. Workers would be moved from this other work to the special order. What is the relevant cost of skilled labour for the special order?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) £5,600
Explanation
Moving workers means the other work is lost. Relevant cost = labour cost + contribution forgone = 200 x (£18 + £10) = £5,600. The wage cost is included because, when the other work is given up, its contribution is measured after charging that wage.
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