Damn! I thought you were going to give an example using widgets which I
would have completely understood. Instead you've discussed gonzos and
now I'm totally confused.
Chuck Norcutt
Moose wrote:
>
> A simple example may make the issues clear. Assume MY Corp spends 10
> million on up front costs to produce a run of 1 million gonzos and that
> actual direct labor, materials, etc. costs are also 10 million. The cost
> per gonzo is then 20. If it then turns out that demand is higher than
> anticipated, they make a second run of 2 million gonzos. First, the
> original fixed costs have already been written off. Second, there will
> likely be economies of scale in the second run. So the cost per gonzo of
> the second run may be 9.
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