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A company uses its direct labour workforce to make a product for which the sales price and unit
cost are as follows:
The workforce is operating at full capacity and it is not possible to obtain any additional labour
hours in the near future. A customer has asked the company to perform a special job that would
require 20 hours of direct labour time.
Required
What would be the relevant cost of diverting labour from its existing work to perform the special
job for the customer?
$ANSWERS
700
Labour cost = 10
Variable overhead cost =2
Lost contribution (80 – 34)/2 = 23
Relevant cost per hour 35
Total relevant cost = 20 hours × $35 = $700Good day sir,i was solving this relevant costing question and i don’t understand why the variable overhead cost was added to the relevant cost of labour.Thank you
You have not typed out the whole question, but it would seem from the answer you have typed that the variable overheads are being charged on a labour hour basis and therefore if labour is being diverted then the variable overheads are treated in the same way as the labour cost.
A company uses its direct labour workforce to make a product for which the sales price and unit
cost are as follows:
$
Selling price 80
Direct materials 10
Direct labour (two hours) 20
Variable overheads (two hours) 4
Fixed overheads (two hours) 30The workforce is operating at full capacity and it is not possible to obtain any additional labour
hours in the near future. A customer has asked the company to perform a special job that would
require 20 hours of direct labour time.
Required
What would be the relevant cost of diverting labour from its existing work to perform the special
job for the customer?Sorry sir,I didn’t copy the question fully.This is the the question
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