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Please help! In dec 11 q1 in point 2, why is the relevant cost $500 and not $200? Ie 40 hours x $5? Wouldn’t you want the minimum cost for the client?
Thanks
If they take the engineers of the job then they will have to pay the penalty of $500 whatever happens because the job will not be finished on time.
If it also meant that they lost the job completely, then they would lose the contribution as well as losing the $500. However, because they are able to complete the job later, they will still be getting the contribution and so the only extra cost will be the penalty for being late.
(Incidentally, if they did lose the job and therefore lost the contribution as well as having to pay the penalty, then the lost contribution would be $400 (not $200) because it is two engineers x 40 hours x $5 per engineer hour. In that case the total cost would be 400 + 500 = $900. However, again, this is not relevant because all they will do is pay the penalty for being late and will still get the contribution)
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