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in part B, in order to calculate incremental costs, need to calculate lost contribution per hour of labour used on new products.
in the answer its (399800-199800)/2000=$100
but 199800 its only include material cost.I thought when calculate contribution we need to reduce whole amount of cost which is 229800, Could anyone explain it for me? Many thanks,
The reason is that you are still using the labour (and therefore still paying for it).
What you will lose is the revenue (3999800) but you will save on the materials (199800) which means the the net cost of ‘stealing’ the labour is 200000.
You can get the same answer in two ways, either take the lost revenue less the material cost saved (which is what the answer does).
Or….take the lost contribution (revenue less materials less labour) and add the labour (because you are still paying the labour).
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but the material cost 199800……….where it comes from????
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