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Hi i have question connected with above exercise.
we are told that supervisor which is currently employed spend 10% of his working time on the hormone adding process. So if he devote 10% of his time which he normally spend on supervising standard process, why we dont add lost contribution on standard product and cost of 10% extra time to incremental cost of new project(perfumes with hormone). i understand that 35,000 is sunk cost because company incurr it even if not undertake project, but extra 10% of time would not be incurred if we do not add hormones.
I want clear explanation sir
please do clarify itIf you are happy with the 350000, then with regards to the lost contribution from the standard product, it is assumed that the supervisor can manage other tasks without incurring additional costs. Therefore, the 10% of his time spent on the hormone adding process does not directly add to the incremental costs of the new project.
The focus should be on the additional costs incurred specifically for the new project, such as extra labour required for processing the hormone-added perfumes, rather than on the supervisor’s time, which is already accounted for in his salary.
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