Question 1

**Section A**

Apex Consulting is deciding whether to accept a special one-off contract. The contract requires 500 hours of highly skilled labor. Apex currently has spare capacity of 200 hours for this labor grade. The remaining 300 hours would need to be diverted from an existing project that generates a contribution of $40 per hour. The skilled labor is paid a fixed weekly salary, and no overtime is possible.

What is the relevant cost of labor for this special contract?

Accepted Answer

Identify the relevant cost principles: fixed salaries are sunk/unavoidable. Spare capacity has a relevant cost of zero. Diverted capacity has a relevant cost equal to the lost contribution (opportunity cost).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Including the fixed salary in the relevant cost, or applying the opportunity cost to all 500 hours.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 4

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