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Hi John !
Hope all is well and you are fine !How possible things like this happen in real life ?? Its quite challenging me
Fixed Cost $ 300,000. Absortion rate is $ 20 Per unit.
Production capacity is 30,000 units
My doubts
1-If we want to operate at full capacity, are fixed costs going to be double ( $ 600,000) ??If no, why this happen ??
Sir, could you give full details to got the point. Its really questioning me many questions on my big head.
Although I will answer, in future if you want me to answer then you must ask in the Ask the Tutor Forum – this forum is for students to help each other.
By definition, fixed costs are costs that do not change with the level of production. In your question they will be $300,000 whatever level of production.
And yes, it happens in real life a lot. Suppose a company rents their factory at a cost of $300,000 a year. The amount payable doesn’t change with the number of units that they produce.
(The free Paper F2 lecture on cost classification and behaviour will help you)
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