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A new project is being considered that will require of 500 hours of skilled labour. The current work force is already fully employed and would have to be taken off work that is currently earning a contribution of $12 per hour, The current workers are paid at a rate of $10 per hour.
What is relevant cost of labour?Opportunity cost is $12 X 500 = $6000
but $10 is the cost which we must pay even if we do not do the project. so i think $10 per hour is not relevant cost of labour. I am confused, pls explain sir.You need to watch the free lecture on relevant costing because this is a standard question and I do explain the logic during the lecture. I can’t type out the whole lecture here 🙂
If labour is being taken from another job, then the relevant cost per hour is the cost of the labour per hour plus the lost contribution per hour.
(Our free lectures are a complete course for Paper F5 and I do suggest that you download our free Study Guide which has links to all of the lectures.)
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