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B Co. operates a production process which generates a contribution of $4 per hour. Wages are paid at $7 per
hour and labour is fully utilised. During busy periods workers are offered the chance to work overtime, which is
paid at $10 per hour. However, workers are currently refusing to work overtime because of an industrial dispute.
B Co has just received an additional order which must be fulfilled immediately which will require 10 hours of
labour to fulfil.Hi sir, my initial answer for this question is $100, but the answer for this question is the contribution lost plus labour cost which is $110.
After reading the examiner’s report, they explained that “The overtime cost is $10/hr, so ordinarily we would choose this as it is cheaper, however due to the industrial action no overtime is available.”
Does this mean that when labour is fully utilised, even when offered chance to work overtime, the cost is not relevant?
Sorry but I now understand the explanation given in the examiner’s report!
I missed a line from the question which was why I became confuse, but now I know.
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