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Hi sir! according to the standard answer, here it said that the cost to divert existing labour = lost contribution + labour cost. But I remenber that you taught us in the lectures that the current workfore’s labour cost is not incremental. so I think it should not be relevant here?
I did not teach that, and it is relevant.
Suppose the currently a product has a selling price of $100, a cost of materials of $40, and a cost of labour of $20. So the contribution is $40.
If the work is taken away to be used in another job then we lose the revenue of $100 and we save the cost of materials of $40. (The labour will still be paying paid).
So the amount lost is 100 – 40 = $60.
This is the same (and is always the same) as the lost contribution of $40 plus the labour cost of $20. i.e. a total relevant cost of $60.
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