Practice questions (short term decision making)

Yyugunman7y ago

Question 5 Labour 5000 hrs existing labour rate is $8 p/hr Lost contribution is $12 I thought the Labour rate is not relevant but it turned out to be relevant as the correct answer was $100,000 not $60,000 Can you explain how please Thanks

John MoffatTutor7y ago#1

It is easier if I make up some different figures. Suppose labour is currently employed making a product that has revenue of $20, labour of $5, and other variable costs (materials and overheads) of $3. So the contribution is $12. If we take the labour to another job, we lose the revenue of $20 and we save the 'other variable costs' of $3 (we will still be paying the labour). So the net loss (and the relevant cost) is 20 - 3 = $17. This is always equal to the contribution + labour (12 + 5 = $17). So the net loss is 20 - 3 =

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