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Dear ACCA Tutor,
Could you please explain to me the solution of the question 116 (Pixie Pharmaceuticals) page 32 of Revision Kit.
I do not understand why we do not take into account of fixed cost of Fairyoxide when calculating saving/(increased cost) if it was purchased from overseas supplier.
The similar case is question 86 where the solution also subtract the fixed cost saved by not-making in house.
In addition, why the relevant costs in a make or buy decision with no limiting factors is the differential costs between the make or buy options.
Thank you in advance
By definition the total fixed costs of the business will not change (unless you are specifically told that they do).
In their costings they have charged/absorbed the fixed costs to each product (to help them assess product profitability) but stopping making one of their products will not affect the total fixed costs payable by the company.
I question 86 you are told the fixed overheads are directly attributable to the various products. If they are directly attributable then they will be saved if production of one of the products is stopped.
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