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John Moffat.
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- January 24, 2019 at 8:46 am #503158
Hi My Dear tutor,I have a question
the note 2
the installation is expected to take one week to complete and would require three engineers, each of whom is paid a monthly salary of $4000.The engineers have just had their annually renewable contract renewed with T co. One of three engineers has spare capacity to complete the work but the other two would have to be moved from contract x in order to complete this one.Contract X generates a contribution of 200$ per engineer per week. There are no engineers available to continue with Contract X if these two engineers are taken off the job.it would mean that T co would miss its contractual completion deadline on Contract X by one week.As a result, T co would have to pay a one-off pemalty of 500$.Since there is no other work scheduled for their engineers in one week’s time, it will not be a problem for them to complete contract x at this point.
in the answer 500 has been showed as a relevant cost but i think i different ways.
If one of three engineers have spare capacity and the other two engineers would have to be moved from cthe contract X.
Let us assume that, the one engineers who has spare capacity, its annual salary will be paid anyway which is not relevant
coming to other two engineers, if they earn 200$ contribution from contract X then it is lost contirbutin because they are taken from contract x to complete this T co’s project
direct cost plus lost contribution by taking consideration of two engineers
$4000*2 engineers=8000
lost contribution of two engineers is $400 each earns $200 separately.I calculated in this way but the answer says 500$?why?
January 24, 2019 at 9:01 am #503160I think I got it, because it is cancellable contract and its penalty is only 500 $ compared to 8400$ pay.it is relevant for the company to pay 500$ instead of 8400$.
January 24, 2019 at 10:36 am #503168Yes – that is correct 🙂
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