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Dear John,
I hope you are safe and well,
Regarding make and buy decision in case of limiting factor and unlimited factor as well,
I just have two questions as follow,
1- as per my understanding the saving per unit of each product is calculated .
SAVING= Purchase price – VC to make
the first question in case of specified fixed cost (Direct fixed cost) to one component or product shall we take the cost of specified fixed cost into consideration or not?2- in case of just producing for example 4 components why we ignore the cost of fixed cost per factory although there is no another components are produced in to allocate the fixed cost to?
Thank you in advance.
Specific fixed costs are only incurred if the particular product is produced. It will be incurred even if only 1 unit of the product is produced, but will not be incurred if the production of the product is zero.
General fixed costs will always be incurred in full if any products are produced. They would only be zero if the factory were to shut down completely which is not going to be the case 🙂
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