Hello

I will participate to a summerschool on accounting&finance and they already gave us a homework. I am a beginner in the accounting world, but still I can't seem to understand what they mean by " 15 % of the direct labour costs of both the thread and the blanket production are fixed and 60% of overhead is also fixed."

Here is a brief description of the case study: There is a company producing blankets carrying out all operations from converting the cotton bale into finished blanket. The management faces a problem: are unfinished products more profitable than continuing production until completing the blankets. The sales manager presented these information :

Cost/ 1 pound twisted thread Cost/1 pound blanket
Direct Labour 0.0466 0.1040
Allocated indirect costs 0.0360 0.0795
Supplies 0.0043 0.0270
Raw materials 0.2200 0.6600
---------- -----------
Total cost 0.3069 0.8705
Present price 0.3200 0.8650
Income 0.0131 -0.0055

Then a chief accountant was consulted over the validity of the information that the Sales Manager presented and he said that : allocating some of the costs was quite liberal, and ocasionally different types of costs were allocated jointly. Answering a question he revealed that 15 % of the direct labour costs of both the thread and the blanket production are fixed and 60% of overhead is also fixed."
I thought being fixed costs they are supose to be a certain amount, not a percent of the costs.

So, please take a look and let me know if you have a solution.