Relevant cost labour hour

Hi Sir,

1) the installation is expected to take one week to complete and would require three engineers each of the following is paid monthly salary of $4000. the engineers just had their annually renewable contract renewed with T Co. One of the three engineers has spare capacity to complete the work, but other two have to be moved from Contract X in order to complete this one. Contract X generates a contribution generates the contribution of $5 per engineer hour.there are no other engineers to continue the Contract X if these two companies are taken off the job it would mean that T Co would miss it contractual deadline of Contract X by one week. As a result T Co would have to pay a one-off penalty of $5000. Since there is no other work for scheduled for their engineers in one week’s time it will not be a problem for them to complete Contract X at this point.

Here the relevant costs are 8000$ the salary of the engineers and the 500$ penalty and we choose the lower of the two. So, 500$

2) 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?

Here the relevant cost is 6500$
100 hours + 15$=1500$ plus the penalty 5000$

Could you please explain me why in the first note the relevant cost is the lower between the two and in the second note is the sum between the two of them?