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What is the relationship between unit cost and number of units produced in this situation? Overhead...

What is the relationship between unit cost and number of units produced in this situation? Overhead costs can almost never be predicted with complete accuracy. Why is it incumbent upon management to predict them as accurately as possible? At what point should management cease seeking to increase the accuracy in its prediction of overhead?

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Answer #1

There is a close relationship between unit cost and number of units produced. It is number of units produced that decide the unit cost by dividing the total cost with number of units.

Overhead cost are the indirect expenses incurred in production of goods or services. Since they are indirect costs, they are not directly dervired by the number of units produced. They are unpridictable and also difficult to analyse. They is a less probability in predicting the overheads.

Management must have control on adminstrative and selling overheads. It is possible to increase accuracy on prediction of overheads when management has the total control over the indirect costs. Management has to try to avoid unexpected and waste costs in order to prevent the decrease in accuracy.

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