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Hello John,
I’ve attempt the question BRT CO June 2011 and I have one small issue regarding the fixed cost
Sales volume (boxes) less than 1 million 1–1.9 million 2–2.9 million 3–3.9 million
Total fixed costs ($) 1 million 1.8 million 2.8 million 3.8 million
General inflation is 3%1. In the question the inflation was applied to ($) 1 million 1.8 million 2.8 million 3.8 million
2. Normally the fixed cost is fixed and therefore if in year 1 it is it was $1m, then it should be the same amount every year. However in the question each year there is a “new” fixed cost and inflation was applied to these “new fixed cost”Fixed costs are costs that do not change with the level of production.
However that does not mean that the amount never changes. Inflation will increase the cost.
For example, rent will normally be a fixed cost because it does not change with the production. However the person renting out the building will certainly increase the rent from time to time!!
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