15-1415-27 (continued)(1) (continued)Note to Instructor: Most students will avoid setting up the costequations by observing that only $3,000 more of fixed overhead isincurred by making the sets of hands than by not making them and that$10 ($24 purchase price - $14 variable cost) is saved for each set ofhands made. Thus it will take only 300 sets of hands ($3,000 ÷ $10 perset of hands) before the savings equals the extra costs. They willthen reason that it will be cheaper to buy for less than 300 sets ofhands and cheaper to make for more than 300 sets of hands. Of coursethis reasoning is precisely that shown by comparing the cost equations.(2) None of the fixed overhead costs listed seems to have much potentialfor being avoidable. This is often the case with fixed costs which areincurred to provide the capacity for a company to engage in aparticular activity. However, in actual decision situations, costs
This is the end of the preview.
access the rest of the document.