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Hi My Dear tutor,I have a question.
A business consultant would be required to work 30 hours on the contract.all consultants are busy next week.one consultant , Colin Carrington, is scheduled to deliver a training course to a client.This course will generate contribution of $10000.if the course is cancelled Colin could work on the new client.alternatively, the training course could be postponed to the following week, when Colin is available.The client would be charged $5000 less if the course were delayed a week.Colin is on a fixed weekly salary of $1000.
My Dear tutor, i know that total contribution will be reduced by 5000 because of The client would be charged $5000 less if the course were delayed a week
it means relevant cost will be lost contribution 5000 +1000 fixed weekly salary=6000 ?
or only 5000 will be relevant cost and the remaining 1000 will be paid anyway and its relevant cost is zero?On the basis of what you have typed, the 1,000 is not relevant because it will be paid whatever happens.
Another question to reconcile the above query with the below question.
The contract requires 800 hours of skilled labor.Skilled labor is paid $9.50 per hour.there is shortage of skilled labor and all the available skilled labor is fully employed in the company in the manufacture pf product P.The following information relates to product P
Selling price——————–100
less skilled labor———–38
less other variable cost–22contribution-40
in this example, i have lost contribution plus its fixed rate pay of 9.50 and the relevant cost will be 800*9.50+800*40=39600.
comparing it with the first example, the first example looks like the second example but in the first example we only consider 5000 as relevant cost not adding 1000 over 5000?
From my understanding, i think 5000 will only considered because there is loss of 5000 which does not meet the requirement of the second example’ case?let us say if we did not have loss of 5000 from the total contribution of 10000 would we consider it in the following way;10000 lost contribution+1000 fixed pay=11000?]
Really need explanation first example not really second example i just showed it for comparison.
The two examples are completely different, and you clearly do need an explanation for the second example because in both cases the pay is fixed and will be paid whatever happens, and is therefore not directly relevant. In addition your answer of 39,600 is wrong!!!
In the second case, not producing product P loses the revenue of 100 per unit but saves the ‘other variable costs’ of 22. So a net loss of 78 per unit. (The labour is paid anyway and so there is no saving).
Each unit of P takes 4 hours to produce (38/9.50) and therefore the relevant cost is 78/4 = $19.50 per hour.
Therefore the relevant cost of the 800 hours needed is 800 x 19.50 = $15,600.The revenue less other variable costs is, of course, always equal to the contribution plus the labour. However, what you have written in your answer is wrong because the contribution of 40 is per unit and since each unit takes 4 hours, the contribution is 10 per hour.
Therefore what you should have written is: (800*9.50) + (800*10) = $15,600All of this is explained in my free lectures!!!
Yes in the second example i missed this case u are right.
first example if there were not any loss of 5000 from total contribution of 10000 would we recognise only relevant cost as total contribution of 10000?
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