ACCA F5 Notes Chapter 9 Short-term decision making
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Sorry John, could I please run the below scenario past you?
‘A future contract requires workers, who are currently working at full capacity, to be moved temporarily, to take on a future contract.
Workers are moved for one week, from their original project schedules, in order to take on a future/proposed contract. However, workers can then return to the original project, the next week, complete the project and recover the contribution deferred during their redeployment for the proposed contract.’
1) In such a case, is it right that there is no opportunity cost because the workers are able to resume their original work, make the intended output, and so the contribution was deferred not foregone?
2) Further, if workers can resume to their old work the next week, does that mean, without BOTH the original work and proposed contract their would have been spare capacity and so we shouldn’t charge the labour hours because there was spare capacity/no opportunity cost of using the labour?
2) If the scenario has been different and whilst the workers were redeployed, the company lost sales on the original project that workers were assigned to (before being reallocated to another contract) then we would charge the opportunity cost of the lost contribution and charge the labour because it was a result of its scarce supply and redeployment that the contribution was lost for that period?
I’m really sorry my questions are so long-winded/not clear.
You must ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture!
John, again, thank you for your lectures, they’re just brilliant.
In regards to salaried labour or factory rent, I understand that these are fixed and committed costs, but can they be relevant costs?
If for example, salaried workers, were working at full capacity, and a future contract being considered would require them to be redeployed to that future contract, causing the firm to sacrifice and an incur an opportunity cost on alternative project, would the cost of the salaried labour, then become relevant?
i.e. would we take the relevant proportion of the salary (time apportioned to the length of the project) and calculate the opportunity cost (lost contribution) to get a relevant cost for the labour?
I’m asking because in all the examples I have seen, we’re given ‘direct wages’ and whilst they have been similar scenarios, I thought the term ‘direct wages’ altered the meaning, because direct wages are variable, whereas salary is fixed?
Please see my reply to your other comment (but thank you very much for the comment 馃檪 )
Thank you, they’e invaluable.
馃檪
Dear Mr. John,
First of all – thank you for your tuition, this is extremely helpful and valuable.
My question is not relevant to the particular tasks discussed, although it is applicable to the whole chapter in general I think. Would you mind explaining the essential difference between sunk costs and committed costs, please?
Oxana
Sunk costs are costs that have already been paid and will not change with the decision.
Committed costs are costs that have not yet been paid, but will have to be paid regardless of the decision.
Thank you!
You are welcome 馃檪
this work is quite good for me as an accounting student at Kyambogo university Uganda
I am pleased that it is helping you (but do watch the free lectures – these are only lecture notes and it is in the lectures that I explain and expand on the notes)
Sir,
why did u multiply 7500kg with 4.20$ instead of 10000kg ?
Because note 6 in the question makes it clear that 7,500 kg of material are needed for the contract.
(I hope that you are watching the lectures that go with the notes, because it is in the free lectures that I explain and expand on the notes. If you are not watching the lectures for any reason then you need to buy a Study Text from one of the ACCA approved publishers and study from there.)