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Hi !
There seems to be an issue of fixed cost (relevant) to the project, which gets appraised. In Charm Inc. question, it gives the FC per unit and different sales units. But in answers, its keeping it fixed at first year’s sales unit.
If this situation arises in exams, can we make assumption that fixed costs will be varying (although by definition, it does not) with level of sales.
Thanks
here i m to clear ur confusion regarding fixed cost in this area.
make a note assumptions on fixed cost:
1. if nothing is mentioned about fixed cost then treat it as relevant fixed cost, (incremental fixed cost)
2. if in question, examiner has given budgeted activity level / budgeted production and fixed cost per unit then always calculate total fixed cost based on that budgeted production units which will remain fixed over the period of project life.
3. sometimes examiner does not give u budgeted production units and just give u fixed cost per unit and different sales units over the project life then in that case always make an assumption that first year sales units is budgeted production units and calculate total fixed cost based on first year sales units which will remain fixed over the project life.hope it clears ur confusion.
Thanks
Muhammad Irfan
Love u alll
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