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Costs of self constructed assets

Can you explain the justification for allocation of fixed costs to constructed assets versus the justification for applying no fixed costs.

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First, consider the logic of it with an extreme example. Let us say that your factory decides to produce an asset for your own use rather than for sale to customers. Your factory makes no product for sale while building your asset. When your factory does produce products for sale, there is an allocation for indirect ...

Solution Summary

The solution explains the rationale of applying fixed costs to a self constructed asset.

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