Question

1. Why might it be a mistake to allocate fixed costs to different products or segments? 2. If there are limits on the amount of a resource that we can use, how do we best decide how to use that resource? 3. Should we allocate joint costs among joint products? 4. How do we decide whether a product ought to be sold at the split-off point or processed further?

Answer 1

Answer 1

Fixed cost is the cost that doesn't change with variations in the amount of o/p over a specified time moreover inside a suitable range of action. Although it should be noted that while fixed costs continue the equivalent in total during the number of output variations, fixed cost/unit of production reduces with a rise in the volume of o/p.

Normally, these costs are selected based on their primary connection b/n fixed cost and the product. There is a possibility that the firm may give a great division of fixed cost to the analysis which is further profitable plus a small relationship to that division which gains marginal earnings. Therefore, unless the fixed cost is designated correctly, the outcome can be deceiving to the administration and can produce additional difficulties while practicing business-related choices.

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