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If labour is scarce and has to be pulled from other sources in order to satisfy a new contract that is currently being deliberated, the contribution/hour from the OTHER project is taken as a relevant cost.
But, why is it that the labour cost is also taken as a relevant cost? It will be incurred anyways whether the project is undertaken or not? So its like a commited cost, right?
Have you watched the lectures,(because I specifically deal with this point and explain it in two different ways)?
Imagine this. Suppose our workers are working on another job that has revenue of $10 per hour, and the only cost is labour that costs $6 per hour (so a contribution of $4).
Now we take those workers for our special job.
We will still be paying the $6 per hour, but we will be losing the revenue of $10. So we need to earn $10 per hour (the labour cost plus the lost contribution).
For a more detailed explanation (but effectively the same) you need to watch the free lectures.
Thanks John! Ill watch them immediately. Im doing FFM so was unsure where to look
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