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In this question to calculate the cost of imported materials y are we multiplying it by 2
Eg – Red = (50000*50%*2.4*2)/2.2
50000 x 50% x 2.4 x 2 = cost of imported materials in K$ as 1 D$ = 2 K$.
Divideng by 2.2 converts back to D$ when the D$ strengthens by 10% ie 2 x 1.1 = 2.2.
but when calculating we dont multiply it by 2 we only divide it by 2.2
Why is thatsorry
but when calculating the revenue we are just dividing it by 2.2 we dont multiply by 2
Y is that ?I don’t have access to the BPP book right now. But looking at the ACCA question and answer published on their site:
For Red:
Demand in Kayland = 50,000 and SP in K$ = 8 so revenue in K$ = 400,000.
At the current exchange rate of 2 this is 400,000/2 = D$200,000
At exchange rate of 2.2 this is D$181,818
At exchange rate of 1.8 this is D$222,222Costs – 50% of material imported from Kaylan, so for Red the cost of D$2.4 is made up of D$1.2 costs in incurred in Deeland. The other half of the D$ cost is the converted cost from goods imported from Kayland. That has been translated at 2 for the budget, so was 2 x 1.2 – 2.4 K$. If the exchange rate changes to 2.2 then this cost in D$ will be only 2.4/2.2.
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