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Part B
For the basis of cost why is fixed costs not included? It only uses variable. Should the question have been more specific, or is it a general rule to do this calculation?
The ‘imported price’ is (think about it) the variable cost per unit – no fixed overhead is absorbed in this price. One extra unit would cost the same again. In order to compare like with like you have to calculate the internal equivalent.
For the basis of cost why is fixed costs not included? It only uses variable. Should the question have been more specific, or is it a general rule to do this calculation?
i agree if fixed costs are included than pixie would subcontract fairyoxide and spritealite and continue to produce goblinex.
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