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Relevant Cost

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

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 19, 2015 at 6:24 am #283818
    Ibrahim
    Member
    • Topics: 41
    • Replies: 79
    • ☆☆

    Hi john,Bronty co is considering whether to undertake some contract work for a customer. A special cutting machine will have to be hired for three months for the work(the length of the contract). Hire charges for this machine are $75 per month, with a minimum hire charge of $300.
    my question is why only $300 minimum hire charge is relevant in the answer (BPP Study Kit.)
    Thanks

    November 19, 2015 at 8:18 am #283867
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    ‘Minimum hire charge’ means that this is the smallest that they will have to pay.

    If they were hiring for 12 months, then they would have to pay 12 x 75 = $900

    If there was no minimum charge then for 3 months they would pay 3 x 75 = $225.
    However, the minimum charge means that they will always have to pay at least $300.

    So since they are hiring for 3 months they will be charged $300 (and not $225).

    November 19, 2015 at 7:20 pm #284026
    Ibrahim
    Member
    • Topics: 41
    • Replies: 79
    • ☆☆

    thanks for the prompt response, I took the minimum charge before as a fixed charge in addition to normal monthly charge. my doubt is now cleared. thanks

    November 19, 2015 at 8:32 pm #284043
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    That is great, and you are welcome 🙂

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