Page 81 - P1 Integrated Workbook STUDENT 2018

Relevant costs and decision making

2.3 The relevant cost of labour

Yes

Is there spare Nil
labour capacity?

No

Yes
Can additional Direct labour cost
labour be hired?

No

Direct labour cost
plus foregone

contribution

Example 2

Calculate the relevant cost of materials and labour for Robson.

Solution

Material A

Are the materials in inventory? – Yes

Will they be replaced? – Yes (they are regularly used in the company’s other
products)

Relevant cost = Replacement cost ($2.15 per kg)

Total relevant cost = 1,000 kgs × $2.15 = $2,150

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