Dear Tutor,
In example 2 John brilliantly points out the extra costs note by note.
Regarding machine OH (note 5), something bothers me:
If we recognise 6,000 hours of electricity cost for the extra job, why don't we recognise 2,000 hours saved from the normal job since those hours were not used? That would reduce our costs by 6,000.
Thanks!
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Relevant cost Ch09 - second video from the lectures
21d ago#1The 2,000 hours saved from the normal job are not considered a reduction in costs because they are already accounted for in the fixed costs of the existing operations.
These costs do not change regardless of whether the machine is used for the new job or not. Therefore, they do not represent an incremental cash flow that would affect the decision-making process.
I see. It is apportioned OH, not extra cost. Thank you!
17d ago#3You are most welcome
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