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Relevant cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Relevant cost

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.
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  • November 11, 2015 at 5:53 pm #281773
    Anonymous
    Inactive
    • Topics: 13
    • Replies: 10
    • ☆

    Workforce is paid at fixed rate $12 per hour. This is a fixed weekly wage, although for the purpose of management accounting, direct labour costs are treated as a variable cost.
    A special job would involve taking employees off the regular work that earns a contribution of $15 per hour, after allowing direct labour cost and variable OH at $2 per hour. The special job would take 10 hours of labour time.

    What would be the relevant cost of labour for this job?

    –> I think the relevant cost is consisted of: additional DL ($2 x 10) + OH ($2 x 10) + contribution forgone ($15 x 10) = $190.
    The answer is $290.

    Please help. Thank u 😀
    :-/

    November 12, 2015 at 6:03 am #281852
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    The question is very badly worded (there should be a ‘comma’ after “…allowing for direct labour cost” )
    However it is only the variable overheads that are $2 per hour. The labour is $12 per hour (from the first sentence).

    So the relevant cost is ($12 x 10) + ($2 x 10) + ($15 x 10) = $290

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