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Study text Practice question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Study text Practice question

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
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    Posts
  • June 6, 2020 at 3:11 am #572949
    AverageAndy
    Member
    • Topics: 128
    • Replies: 34
    • ☆☆

    100 hours of unskilled labour, currently paid at $5.50 per hour, are needed for the contract. Z Co has no surplus capacity at the moment , but additional temporary staff could be hired at $6.50 per hour.

    What is the relevant cost of the unskilled labour on the contract?
    A $0
    B $550
    C $600
    D $650

    Ans: D

    Sir why is the answer not B because that is a cheaper option for the firm($550 vs $650). Here we dont have contrn lost amount so we can ignore that and assume that the company will choose the cheaper option which is the cost of shifting unskilled labour($550). So how is that wrong?

    June 6, 2020 at 11:02 am #572968
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54702
    • ☆☆☆☆☆

    They have two choices if they do contract Z. One is to hire temporary staff to do the contract and this would cost $6.50 per hour.

    The other choices is to move current labour (in which case still be paying them $5.50), but if they do that then they will have to hire temporary staff to do the current work, and that will cost $6.50 an hour.

    So in either case they will end up having to pay $6.50 an hour for the 100 hours needed.

    Have you watched my free lectures on relevant costing? The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.

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