- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
- Posts
Hello sir. Could you explain please the question 5 everybody talking about from practice tests. Why are we including both the salary and the lost contribution when “doesnt matter do we do or we dont do the contract we paying the salary to workers anyway.”
I have seen your explanation about Revenue, saved variable costs and that you explained it in the lecture. But i have seen the lecture 5 times there is no mention of this really really tricky part. please advice!
It is explained in the revision lecture.
Just suppose the revenue from the existing work is 100, the labour is 10, and other variable costs (such as materials) are 20.
Then the contribution is 70.
If we take the labour for a new job, then we lose the revenue of 100, we still will be paying the labour, but we save the other variable costs of 20. So the opportunity cost is 100 – 20 = 80.
Which is the same as the labour plus the lost contribution (10 + 70 = 80) and always is the same.
- The topic ‘relevant costing’ is closed to new replies.