- This topic has 1 reply, 2 voices, and was last updated 9 years ago by
.
- Posts
Hi Mr John…I watched your lecture based on cost behaviour you mentioned “depreciation of machine” as a fixed cost….Can explain what it is?Thank you very much…
When we buy an asset, we account for the cost of it by charging a bit of the cost each year in the profit statement. (How we do it is not relevant for Paper F2 – calculations on it are only asked in Paper F3).
However, the amount of the cost each year depends on how much it originally cost (so for example, if the machine cost $20,000 and will last 4 year, then maybe we will show an expense of 20,000/4 = 5,000 each year). It is a fixed cost because the amount each year does not depend on how many units we produce – it is the same amount however many units there are.
Again, calculations of it cannot be asked in F2 (only in F3) and so all you need to know is that if it relates to factory items, then it is treated as a production cost. And that it is a fixed cost.
- You must be logged in to reply to this topic.