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Q.a special cutting machine is hired for 3 months which is the length of the contract. hire charges are $75 per month, with a minimum hire charge of $300.
when calculating the relevant cost why are we taking $300. why aren’t we taking (75*3). could you explain me what is meant by hire charge per month and minimum hire charge in this question
The hire charge is 75 per month, but the minimum charge is 300. So anyone hiring a machine will have to pay at least 300.
For 3 months is would have been 225 – but they have to pay the minimum of 300.
If it had been 5 months then it would have been 370 (and that is over the minimum so they would pay 370).
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