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Hi John!
In June 2012 question 1(ROBBER CO):
1. could you explain why in note 4, the fixed cost of $4000 and $6000 have been included when calculating the cost of manufacturing in house. They are both fixed will be occurred anyway, so why they are included?2 In part b, why specific fixed cost has been has been excluded when calculating the cost/ saving? They would be saved if we outsource therefore could be potential relevant cost.
Thanks.
For part (a), if they make the products in-house then the fixed costs will be incurred. If they outsource all of the products (and therefore to not make them themselves) then the fixed costs will not be incurred. So we need to bring them in when considering making them all in-house in order to compare.
For part (b) at least one of each unit (keypads and screens) will be made in-house, and therefore the fixed costs will be incurred. The fixed costs would only ‘disappear’ if we make none of the products.
-How fixed cost will be incurred? By definition they are fixed and will stay fixed whatever happens.
-Are they specific fixed costs?
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