Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012 Warn students to be very careful with the total cost per unit that includes fixed costs (FCs) per unit. Managers often misuse total cost per unit data for decisions where FCs are not relevant. Managers may also mistakenly multiply the same total cost per unit by different numbers of units. They may not realise that the
total cost per unit changes, as the output level changes because FCs are spread over different numbers of outputs. Telling students that total cost per unit figures are valid only at the assumed output levels may help get the point across. Special orders usually do not incur regular marketing costs because they usually do not go through normal channels. There maybe special fixed (marketing) costs of obtaining the order if there is excess manufacturing OH. However, the special order could increase fixed manufacturing OH if it increases output to a higher relevant range or if it requires special machinery, etc. Fixed manufacturing OH and marketing and distribution costs mayor may not be relevant
in special-order decisions, depending on the specific situation.
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