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Could you please help me to understand the following:
1. Why did they mention “semi-skilled” in their answer, if the question states “skilled”? Per my understanding words “semi-skilled” and “skilled” are not the same.
2. Why is it 0? Is it because they already have 300 hours of spare capacity and the costs will be incurred anyway, so these are “sunk cost”?
Q3. 100 hours of skilled labour are needed for a contract. The company
currently has 300 hours worth of spare capacity. There is a union
agreement in place that there are no lay-offs. The workers are paid $8.50 per hour.
What is the relevant cost of the skilled labour on the contract?
The relevant cost of the semi-skilled labour on the contract is NIL.
Spare capacity exists, and therefore the relevant cost of the semiskilled
labour is $0.
Thanks in advance!
Source: Kaplan Study book 2021
Chapter: Relevant costing, page 287, question 3. Answer page 301
Semi-skilled and skilled are certainly not the same, and I can only assume that it is a typing mistake in the book and that they mean to have typed skilled (I do not have the Kaplan book – only the BPP Revision Kit).
It is 0 because the have spare capacity, will be incurring the cost anyway, and so it is a fixed cost.
Have you watched my free lectures on this? The lectures are a complete free course for Paper PM and cover everything needed to be able to pass th exam well.
If you are watching the lectures then you do not really need the Study Text. The essential book (however you choose to study) is the Exam Kit because it is full of past exam and other exam standard questions for practice, and practice is vital to passing the exam.