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there are 100 liters of material A in stock. a new contract needs 50 liters. since the material is dangerous, the it will cost 50/liter to dispose off. the current price is $12.
“if this material is not used in this contract, it will have to be disposed off at 50/liter”
what is the relevant cost of the material for the contract?
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the text says a gain of 2500. i understand this part.
what i dont understand is why arnt we taking into account 50×12=600?
$12 is the cost of buying the material.
We are not going to buy any – we are using what we have in inventory so it doesn’t actually cost us anything! However it does save us having to dispose of it (and you are happy with the 2500 saving).
In some questions we have materials available in inventory, but it is less than the contract requirement, (eg, 500kg required, 400 in inventory), how should we value them ? and which value should be used (carrying value, realizable value or replacement ?).
If there are not enough in inventory, then the extra will need to be purchased!!!
The extra therefore have to be costed at the cost of buying them.
(Have you watched the free lecture on this?)
In BBP kit Question 20.9
Material Y: 500Kg is required and 400kg is inventory but the whole 500Kg is costed at purchase cost instead of costing 100Kg at purchase cost and 400kg of inventory separately.
i meant a link to lecture on this topic….i cant find the link…
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rahmati.. i know this question…..it threw me off too … thats why i need the link to john’s lecture on thishaymd1: The BPP solution is NOT wrong at all!
Y is in regular use, and so the material taken from inventory needs to be replaced at the replacement cost.
So all 500kg should be costed at $11 per kg.mansoor:
You can find links to two lectures on the following page:
https://opentuition.com/acca/f5/acca-f5-revision-notes-and-lectures/
(you will need to download the free revision notes that go with them)
thank u…
20.9 in my bpp has 4 materials: w,x,y,z.
for X, it says it is no longer in use. we need 500 kg and have 300 in inventory. it also says that there is no alternate use for X.
the text values the entire 500kg on its realizable value of $3/kg. its replacement cost is $7/kg
i valued 300@3/kg and 200@7.
can u explain why my calculation is wrong?
thanks
Haydn was answering rrahmati who asked about material Y. For material Y, the BPP solution is correct.
However they are wrong for material X. Since there is only 300kg in inventory, the extra 200kg will have to purchased and your workings are correct.
whew…john… this is too depressing. these ppl charge an arm and a leg for texts and this is the second wrong question.
for ppl doing self study this spells diasaster.
thanks for clearing it up
It is bad (and you will probably find more errors).
At least they seem to have fewer errors than Kaplan do this time in their F5 Exam Kit!i think u shd publish ur exam kits. am a 100% sure students will buy urs anyday!
and yes.. kaplan’s typos are unforgivable. not sure who proof reads them…
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