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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 😀
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