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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › relevant cost
Hi!
1.In order to complete the contract, a member of the finance team will be required to work 8hrs overtime; overtime is paid at a rate of $15 per hour. Alternatively, an experienced contract accountant can be hired to administer the project in 75% of the time it would take the finance department member to complete. The contractor’s rate is $25 per hour. It took the member of the fiance team 3 hrs to put together the information of this quota and no overtime was required.
-In the revision kit, the relevant cost for the experienced contract accountant is calculated as “$25 × 75% × 8 hours = $150”.
-Could you explain why 75% has been multiplied by 8 hrs and not by 3 hrs?
Thanks.
The 3 hours is a sunk cost – the question said ‘it took the member 3 hours’, so it has already been done and the money has already been spent.