why fixes cost can not be incremental cost, it is clearly mentioned in the question incremental cost ,which mean incurred just for this specific project. why they didn't included it the calculation?
Blunt is considering a new project but is unsure how much overhead to include in the
calculations to help him decide whether or not to proceed. Existing fixed overheads are
absorbed at the rate of $8 per hour worked. Blunt is certain that the project will involve an
incremental 500 labour hours.
The project will involve extra machine running costs and these variable overheads cost him
$4 per hour. The number of extra machine hours is expected to be 450 hours. The
difference between this figure and the 500 labour hours above is expected idle time.
The project will require a little more temporary space that can be rented at a fixed cost of
$1,200 for the period of hire. This overhead is not included in the fixed overhead
absorption rate above.
What is the overhead to be charged against the project decision?
Ask the Tutor ACCA PM
relevant cost
2y ago#1The fixed costs are not included in the calculation of incremental costs because they are not directly related to the specific project.
Fixed costs are costs that do not change with the level of production or the number of hours worked.
In this case, the fixed overheads are absorbed at a rate of $8 per hour worked, but they are not considered incremental costs because they are already being incurred for the existing operations.
thank you, but in then they continued and say "Blunt is certain that the project will involve an
incremental 500 labour hours" isn't that meant the fixed cost was only incurred for the project?
2y ago#3No unless there is a step increase not incremental
They are not relevant
2y ago#5Please do not answer in the Ask the Tutor Forums. However please do help students in the other (non-Ask the Tutor) forums.
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