Answer:
So, the relevant cash flows are Revenue, materials and labour cost.
Explanation:
<em>A relevant cashflow is that which is future cash cost/revenue which arises as a direct consequence of a decision. For a cost or revenue to be considered a relevant cashflow it must satisfy the following conditions:</em>
1) Futuristic 2).Cash based 3)Incremental
Relevant cash flows for the contracts are set down below:
$ $
Revenue 200,000 260,000
Materials (10,000) (10,000)
Labor <u> (88,000) </u> <u>(120,000)</u>
Net cash flow <u> 102,000</u> <u>130,000 </u>
Depreciation is not a cash item, the consulting advice fee is already a sunk cost. Apportioned overhead is also not a direct cost but sunk
So, the relevant cash flows are Revenue, materials, labour
