Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › PM Revision Kit 2020-2021, Robber Co, Q.164 Pg 53 and Ans on Pg176
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John Moffat.
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- November 13, 2021 at 12:23 pm #640552
Greetings sir,
I request you to explain very well the following dilemas I have encountered in the following complex problem:
Issue 1:
(A)
Note 4 – Machine Costs.
The note clearly says that the variable element is based upon the number of batches made.
Before it was 500 batches, and now changes to 400 batches.
Therefore once I get my total variable amount, I naturally would divide by 500 batches to get the v.c per batch and multiply with the new batch total 400, to get the new total variable cost total.This is how my logic worked. But they did the opposite! They divided by 400 then multiplied by 500. What is going on ?!
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Issue 2:
(B)
In (A) the attributable fixed costs to the keypads and display screens become direct costs and thus are calculated alongside the direct variable costs together to arrive at the total Variable Costs. Then compared to outside cost offer to arrive at make or buy decision for each product.I do not thus understand from the working why these attributable fixed costs which were before relevant are no longer relevant when the same make or buy decision is being repeated? How does the person know with guarantee they would be “making atleast one unit of each” as described in the explanation for the answer in Pg177 when we know a limiting factor exists ? We could very well be making only one product and outsourcing all the other products because the labour hours available is very short than expected. So before calculation, how does attributable fixed costs become irrelevant because of “that” explanation given ?
Second, how for “(A)” the attributable fixed costs were relevant to the decision, and now suddenly in (b) it no longer is ?! Im really confused.
Please guide generously.
November 13, 2021 at 5:28 pm #6405781. The question does not say that they make 500 batches. It says that they made in batches of 500 (obviously units) and they are now making in batches of 400 (units). If they have fewer units in each batch then they will make more batches.
2. We know that they will be making at least one unit of each because for both of them it is cheaper to make than to buy. (It is just a question of for which of them they will end up buying some because of the limitations). On that basis the attributable fixed costs will exist whatever they end up buying externally.
November 15, 2021 at 12:32 pm #6406901. Understood sir. English mess up.
2. Please elaborate generously
November 15, 2021 at 3:23 pm #640704They would prefer to make both products in-house because it is cheaper than buying outside.
However, because they only have 100,000 labour hours available, they cannot make them all in-house. The most keypads they can make in-house is 100,000 and that would take 50,000 hours, so if they did that then they would spend the remaining hours making display screens in house. Alternatively the most screens they they can make in-house is 100,000 and that would take 75,000 hours, so if they did that they would spend the remaining hours making keypads.
Whichever they do (and which they do uses the approach I explain in the lectures) then they will certainly be producing some keypads and some screens. The attributable fixed costs occur as soon as they make any units, and will therefore occur whatever happens.
November 16, 2021 at 5:14 pm #640819Sir, Did you mean “whichever WAY they do FIRST” – as in either make keypads first or display screens first, the second will have to follow on – and thus fixed cost occurring either way. Therefore irrelevant.
You typed “Whichever they do”.
So please let me know whether you meant what I added in the sentence.Thankyou very much for such a generous reply, dear sir. It finally makes sense.
November 17, 2021 at 7:32 am #640844Yes, I meant as you write in your first sentence.
November 17, 2021 at 2:11 pm #640889God bless for the great assistance.
November 17, 2021 at 3:23 pm #640908You are welcome.
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