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- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
John Moffat.
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- October 21, 2021 at 8:31 am #638679
sir the below question is from the kaplan texting your understanding
A manufacturing company is considering the production of a new type
of widget. Each widget will take two hours to make.
Fixed overheads are apportioned on the basis of $1 per labour hour.
If the new widgets are produced, the company will have to employ an
additional supervisor at a salary of $15,000 pa. The company will
produce 10,000 widgets pa.
What are the relevant cash flows?for this question the answer is only the supervisor cost of $15000… and they stated that fixed ohs are not incremental
but what if they stated the company will produce additional 10000 units ?
will we multiply 10000 units x 2hrs x $1 per hour = $20000
so now will this $20000 along with the $15000 which gives a $35000 will be the total relevant cost sir ?
October 21, 2021 at 3:45 pm #638717Fixed costs remain fixed in total by definition. Therefore it is irrelevant how many additional units will be produced – there are no extra fixed costs (other than obviously the extra supervisor).
October 22, 2021 at 2:44 pm #638795ok sir thank you
October 22, 2021 at 4:21 pm #638810You are welcome.
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