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” A price in excess of full cost per unit will ensure that a company will cover all its costs and make a profit.”
1. In the BPP kit, this statement is not true.
2. I am a bit confused here. A price greater that it’s full cost would ‘obviously’ generate a profit.
3. Could you please clarify?
They only make a profit is they manage to actually sell the goods – they might not be able to sell them!
Also, in the calculation of the full cost, fixed overheads are absorbed.
The absorption rate is calculated using the budgeted production. If the production turns out to be less than budgeted, then the full cost per unit will be higher and it could be higher than the selling price that has been calculated using the standard cost.