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Hi Sir,
I was not able to understand the concept of fixed cost. If it is not mentioned as per your lecture we will consider that there will be no limit on hours, i was not able to understand this.
Will we consider fixed cost equivalent to the total amount as 135,000( given in example) if not mentioned or will we take it as 80,000.
It would be really helpful if you could give a detailed explanation on the concept behind this.
Thankyou 🙂
When they originally absorbed the overheads to get the costs per unit, they will not have know that there was a limit on the hours and so they will have assumed that they were going to produce as many as were demanded of each unit.
So we can calculate what the total fixed costs they were absorbing was.
It turns out that they end up producing less (because of the limit on the hours) but the total fixed costs (by definition) will not change with the level of production but will stay the same.
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