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Hi John
last minute panicExample 4 Pg 50 Fixed costs to be absorbed into new product are excluded from Project
However Q1 dec 2011 Warden – incremental fixed costs of 160 pa arising from operation of the machine – ARE INCLUDED in the answer
Why ?
What does incremental mean ? €160k is used for 5 years ?
thanks a million
Incremental simply means extra.
What matters is whether or not the total fixed overheads of the company change because of doing the new project.
If you are simply told that fixed costs are being absorbed, then that just means that for profit purposes the fixed costs are being shared between different projects – it does not mean that the total will change, and is therefore not relevant.
However, if you are told that there are incremental (extra) fixed costs because of doing the project then these are relevant.
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