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See BPP exam kits the question of sniff linited (12/07), see its answers the answer of part b.:
Why it has not added the cost of supervisors and fixed overheads ?
see where it has calculated the incremental cost why it has not included the supervisory; in the question it is said that the supervisor has to spend 10% of his working time, so it should be included, why it has not?
PLEASE REPLY, thanks in advanceAlthough the supervisor spends 10% of his time, it does not say that he is paid any more (he just has to work harder!!). If there is no extra payment to him, then there is no extra cost involved.
Similarly for the fixed overheads. For profit purposes you can charge fixed overheads any way we want, but they are only relevant to this sort of decision if the total fixed overhead cost increases – there is nothing to say that the total cost changes.
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