Production capacity Vs Budgeted units

AAloyce11y ago

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.

John MoffatTutor11y ago#1

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)

AAloyce11y ago#2

Sorry Sir i didnt even know, i hav posted in this forum. Wont repeat again. Why the absortion rate has based on 15,000 units instead of 30,000 ???