Can be avoided?
While a discussion was on for shut down, continue decision to be taken there is a need to differentiate amongst fixed cost as avoidable and unavoidable. Generally, it is believed that fixed costs cannot be avoided, and a conclusion was about to be made that the entire fixed cost cannot be avoided. Then practical examples were taken up. But most of the examples in practical day life cited by participants, was heading for Fixed costs cannot be avoided.
There came a reply from the participants that if a person goes for 2 months to a foreign country on a work related out of country trip, he cannot avoid the rental being paid for unavoidable fixed cost. Then came the real avoidable fixed cost, he went on to tell that he avoided paying the newspaper man the charges, by telling not to place the newspaper for those two months.
The person should first try recovering the avoidable fixed cost by opening the factory and if he is fortunate enough he can recover the remaining unavoidable fixed cost.
By CA L.Muralidharan and CPA L.Mukundan
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