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VV Co. Has been asked to quote for a special contract .The Contract requires 100 hours of labour.However, the labourers, who are each paid $15 per hour, are working at full capacity.
There is a shortage of labour in market. The labour required to undertake this special contract would have to be taken from anotger contract Z, which currently utilises 500 hours of labour and generates $5000 worth of contribution.
If the labour was taken from contract Z, then the whole of Contract Z would have to be delayed, and such delay would invoke a penalty of $1000.
What is the relevant cost of the labour for the special contract?
Please do not simply set me test questions and expect me to provide and answer.
You must have an answer in the same book in which you found the question, and so in future ask me about whatever it is in the answer that you are not clear about, and then I will help you.Assuming you have copied the whole of the question correctly, then if the labour is taken from contract Z then they will simply delay contract Z and pay a penalty of $1,000. There will be no loss of contribution (because contract Z will still go ahead).
I do assume that you have watched my free lectures on this. The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
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