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Good day Sir,
I will need some clarity on question example 4 of Opentuition notes, chapter 8. Inflation.
The phrase: Fixed overheads of the company currently amount to $1000 0000. The management accountant has decided that 20% of these should be absorbed into the new product.On what bases are we to absorbed the 20%.- on material cost, labour, machine cost, or what?.
Sir I need some clarity.
thanks.
It is irrelevant (and you can’t be asked to absorb in the exam either).
We are only interested in extra cash flows as a result of making an investment. Simply absorbing (or charging) some of the fixed overheads for profit purposes implies that the total fixed overheads will not change, and therefore they are not relevant to the decision.
You are obviously not watching the free lectures, because I explain this in the lecture. There is no point in using the lecture notes without watching the lectures, because they are lecture notes and it is in the lectures that I explain and expand on the notes.
If you are not able to watch the free lectures, then in order to pass you really need to pay to go on a course or alternatively buy Study Texts and study from those.
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