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John Moffat.
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apark
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Why do we exclude costs in the “incremental running costs” section for staff costs and power costs.
Staff costs: We exclude the manager’s salary $2,500 and chef’s salary $2,000 in hotel and manager’s salary $0 in water park – is it because they are paid ‘fixed’ for the full year regardless of their working hours?
Power costs: We exclude the electric $0, gas – fixed charge $0 and security $0. Is this because these are fixed monthly charges so we exclude all fixed charges in the incremental cash flows?
John Moffat
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Correct. Incremental means extra and so if the payments are fixed then there is no extra cost or saving.
apark
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