- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
Viewing 2 posts - 1 through 2 (of 2 total)
- Posts
Hi John!
When workers are moved from one job to another, the relevant cost is the rate of pay + any lost contribution.
-From you lectures, I do have understood the reason for the lost contribution; however why the relevant cot also include the rate of pay? What’s the logic?
Suppose the current job gives revenue of $100, has a labour cost of $30, and other variable costs (materials etc) of $10. So there is a contribution of $60.
If the labour is taken for a new contract, then we lose the revenue of $100, we save the materials etc, of $10, but we will still be paying the labour of $30.
So the amount lost (the relevant cost) will be 100 – 10 = 90.This is always equal to the lost contribution (60) plus the labour cost (30).
Viewing 2 posts - 1 through 2 (of 2 total)
- The topic ‘relevant costing’ is closed to new replies.