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hi sir i have question from bpp exam kit question 92 why have the taken the marginal cost i don’t understand
I assume that you are referring to the Q92 in the current edition of the Revision Kit (they are making product P and the correct answer is $75).
First, there is a typing error in the question. The $25 that is labelled as ‘marginal’ should be labelled as ‘materials’.
If they take hours away from product P then they will lose the revenue from P of $100 per hour. However they will not need to buy materials for product P which will save them $25 per hour. (They will still be paying for labour and variable overheads because they will be used in making Q, so no saving there). So the net cost of taking hours away is $100 – $25 = $75 per hour, and this is therefore the relevant cost.
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