ACCA Performance Management (F5) Certification Practice Exam

What is the relevant cost of labor in full capacity that can be hired more?

1. Extra cost of labor

2. Opportunity cost of diverting labor

3. Fixed cost of labor

4. Market rate for labor

The correct answer is: Extra cost of labor

The relevant cost of labor when considering hiring additional employees at full capacity is the extra cost of labor. This concept focuses on the additional costs incurred by the company when it decides to employ more labor beyond its current capacity. It takes into account the incremental expenses that come directly from hiring more workers, such as wages and any associated benefits or training costs. When a business operates at full capacity, it often faces the decision of whether to increase labor to meet additional demand or to optimize existing workforce efficiency. The extra cost of labor reflects the direct, variable costs associated with this decision and is essential for making informed financial choices about expanding production. While the other options may relate to costs under different circumstances, they do not directly address the notion of additional costs incurred from hiring more labor at full capacity. For instance, opportunity cost is valuable when considering the potential benefits lost from alternative uses of resources; however, it is not the direct cost of hiring more labor. Similarly, fixed costs are generally ongoing and not directly influenced by the decision to hire additional workers. The market rate for labor provides a general benchmark but does not specifically address the costs incurred by adding new labor resources beyond what is currently employed. Overall, focusing on the extra cost of labor is crucial for capturing the direct