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Overheads:
The entire job order is estimated to consume 1,200 units of electricity. Schedule Co pays a fixed monthly electricity
charge of $400 and a variable charge of $2.50 per unit of electricity consumed. To account for the interest on
outstanding loan of $10,000, Schedule Co charges an interest rate at 2% to each job order.Relevant cost of overheads is $ 3000
I dont get it. How?Thanks in advance
The fixed charge of $400 will be paid anyway, regardless of whether they do this job or not, and is therefore irrelevant.
Similarly, the interest on the loan will be paid anyway, regardless of whether or not they do this job also.Therefore the only relevant cost is the extra 2.50 per unit consumed. 1,200 units x $2.50 = $3,000
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