Ask the Tutor ACCA PM – Short Term Decision Making

Dear John,

I hope this email find you well.

I have a question related to Relevant Costing. The question is as below:

“A company needs 5,000 hours of labour for a contract they have been asked to quote for. The work currently being carried out by our employees is generating a contribution of $12 per hour, and using them on the contract will mean taking them away from their other work, our workers are paid at the rate of $8 per hour.”

A. $60,000
B. $NIL
C. $40,000
D. $100,000

The answer was D $100,000, and the calculation was $12 + $8 x 5000hrs

May I ask why the $8 of wages was consider as relevant cost to the contract? As for my understanding, even those we do not receive this new contract, we still have to pay $8 per hour to the workers. But unfortunately, my assumption was wrong. Please, may I seek for your guidance on this?

Thank you,
Kum