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Q 42. VV Company has been asked to quote for a special contract. The contract requires 100 hrs of labour. However, the labourers who are each paid $15 per hour, are working at full capacity.
There is a shortage of labour in the market. The labour required to undertake this special contract would have to be taken from another contract,Z, which currently utilises 500 hours of labour and generates $5000 worht of contributions.
If the labour was taken from contract Z, then the whole of contract Z would have to be delayed, ans such delay would invoke a penalty fee of $1000.
What is the relevant cost of the labour for special contract?Answer: $2,500
My question is why not taken consider penalty fees $1,000 for this special contract?
Thanks Teach Moffat.
May
It has been considered.
The cost is 100 hours of labour at $15 per hour, plus $1,000 penalty.
(The contribution from A is not relevant because it is just delayed and so the contribution will still be earned)
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