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I have solved the question using relevant costing but I was confused in one thing.
Machine cost are semi-variable costs so the variable component should be relevant to decision making while fixed cost should not but here we are taking both fixed and variable as relevant cost.
Can you help me that why fixed are considered as relevant.The machine has fixed & valuable components of costs. Hence should that machine wasn’t utilized, these costs, including fixed component couldn’t be incurred. Therefore, those fixed cost are specific to the decision being made (that means they’re relevant to that specific decision), and they are not general fixed costs.
Navasilas: Please do not answer questions in this forum because it is the Ask the Tutor Forum and you are not the tutor. But please do help students asking in the other Paper PM forum 🙂
maximus07: What Navilas has written is correct 🙂
The question does not specifies that these are specific cost.
There can be a case of having fixed cost irrelevant to decision e.g. depreciation on straight line bases.
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