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Sir, this is a problem from the Exam Kit.
In the explanation for part (b) the following is given:
“The attributable fixed costs remain unaltered irrespective of the level of production of keypads and display screens, because as soon as one unit of either is made, the costs rise. We know that we will make at least one unit of each component as both are cheaper to make than buy. Therefore they are an irrelevant common cost. ”
I can’t fully understand this. If “fixed costs remain unaltered irrespective of the level of production of keypads and display screens”, then why “as soon as one unit of either is made, the costs rise” ?
And what is the relevance to the problem of “we will make at least one unit of each component as both are cheaper to make than buy”?If we do not make any then we will not have the fixed costs. If we do make any (even if only 1) then there are fixed costs and the total will be the same however many we make.
Attributable fixed costs are fixed costs that only occur is the particular process or production takes place.
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