- This topic has 3 replies, 2 voices, and was last updated 12 years ago by
.
- Posts
If you have a company producing goods in a factory and they have a sales office, accounts dep, HR etc when a question refers to fixed costs and contribution are they referring to “cost of sales” fixed costs i.e. the factory rent or are they referring to all fixed overhead costs for the compay i.e. the accounts department/training costs etc?
I’m just a bit confused as to whether they are looking at the cost of sales fixed costs are indirect overheads such as the cost of the support teams?
If the question is testing you on contribution (for example, asking you to calculate breakeven) then you are interested in all costs of the business – whether they are production or non-production.
If you are being asked to prepare a cost card using absorption costing (for inventory valuation, for example) then we are only interested in production costs.
Many Thanks – so if the question is talking about absorption costing then you would have to include production fixed overheads such as factory rent but not non-production overheads such as the HR Department?
- You must be logged in to reply to this topic.