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Sir, I have below queries on ACCA Practice and Revision Kit
Question 88, why does the conversion cost only consider the labor expenses of $2.250mil (total machine hours 225,000 x $10 labor per hour) and other factory costs of $18mil. How about the cost of $2.5 per meter for product B?
Question 101, what is meant by profit mark up on marginal cost? The question only provides variable cost and fixed overhead, the breakeven point is just to cover those variable costs?
Question 102, what is meant by marginal in the cost card? Is it referring to the contribution of Product P? (i.e. the opportunity cost will be forgone when diverting labor and machines to Product Q? So the total relevant cost of Product Q is 25+30+20=75
Question 103, the question mentions that if the production and sales are in higher volume, the variable cost for the incremental units falls 52%. But how high the volume is and how to make an assumption? We need an extra $0.625mil ($1.3mil – $0.675mil) to cover fixed cost. What is that of $0.625mil / 0.48?
Question 117, why without information, project 3 of $10k will be chosen, and why the value of perfect information is expected value with perfect information – project 3 “$17.5k – $10k = $7.5k?
Question 119, the variable cost of $6.8mil is $3.06mil, the remaining $3.5 is a fixed cost. But for what assumption and indication, $3.5mil is the highest sales level and $3.1 is the lowest sales level?
I assume that you are referring to questions in the BPP Revision Kit.
However which edition are you using because I only have the current edition (for exams up to June 2022), and the questions do not seem to tie in with what you are asking.
If you are using an older edition then type out the first line of each question and I will see if I can find them in the current edition.
Yes..it is the BPP revision kit. Mine is also the current edition for exam up to June 2022.
Thank you.
Sorry – I was confused before 🙂
Q88 The question says that they are using throughput accounting, and the whole idea of throughout accounting is that the cost of materials is the only variable cost and that all of the other costs (including labour) are fixed in the short term. I do stress this in my free lectures on throughput accounting.
Q101 Breakeven occurs where the total contribution is equal to the total fixed overheads, as again I explain in my lectures. (I don’t understand why you are asking about ‘profit mark-up on marginal cost since this is not relevant in this question).
Q102 The word ‘marginal’ in the question is a typing error – it should read ‘materials’.
If they take the labour for a new product, then they will still be paying for labour and variable overheads (and of course total fixed overheads will not change). However the will lose the revenue from the existing product of $100 and will save the materials for the existing product of $25. Therefore they will lose a net $75 and this is therefore the relevant cost.Q103 For breakeven revenue we divide the fixed overheads by the CS ratio as I explain in my lectures. For higher sales, the variable cost is 48% of the sales. Therefore the contribution is 100 – 48 = 52% of the sales, and this is therefore the CS ratio.
Q117 Without perfect information they will choose the project with the highest expected value. The expected value of 1 is $7,500; of 2 is $9,800, and of 3 is $10,000. Therefore they would choose 3 and get $10,000.
With perfect information, for strong demand they would choose 1 and get $70,000; with moderate demand they would choose 3 and get $20,000, and with weak demand they would choose 2 and get $5,000. Therefore the expected return will be (0.1 x $70,000) + (0.4 x $20,000) + (0.5 x $5,000) = $17,500 i.e. and extra $7,500. Do watch my free lectures on this again.Q119 If the increase in fixed costs did not exist, then for sales of $6.8M the total costs would be $6.16M, and for sales of $5.2M the total costs would be $5.44M.
Therefore using the high-low method, the variables costs are (6.16 – 5.44) / (6.8 – 5.2) = 0.45 or 45% of sales.
Therefore the contribution is 100 – 45 = 55% of sales, and the CS ratio is therefore 55%.
Thank you sir of your detail explanation and sorry for missing some pts in the lecturers.
I will restudy your answer again.
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