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ACCA F5 Key Factor Analysis

VIVA

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    • Because the profit is calculated after absorbing the fixed overheads. However the total fixed overheads (by definition) do not change. It is only the revenue and variable costs (and therefore the contribution) that changes with the level of production.
      I do actually explain this in the lecture.

  2. Dear Sir,
    Is it possible to work the problem out under the alternative assumption that management was aware of the shortage of machine hours and hence the fixed costs in the cost card are costed on basis of actual availabe hours?

  3. Don’t we say that it’s a fix cost (total fix cost ) which remain a same amount in every level of units produced… ?so why would it be different whether we know there is a limitation of hours and we can only produce 19000 A , or we don’t know the limitation and we calculate the fix cost for 20000…? Would the fix cost be different in these levels?

  4. hello sir..sir i confused in example 3 why you took full production capacity for calculating fixed cost..why you not take this is at optimal production units..

  6. Dear Sir,

    thank you for the lecture and I understand why contribution is used and how we used demand as the principal budgeting factor. Nevertheless, if in the question we know the limiting factor is not budgeted sales but machine hours why do we assume that fix o/h ‘s were budgeted on sales volume?

  11. A very good presentation. Thanks. The key is to make the best use of a scarce resource (limited machine or labour hours) in producing the products. Contribution p.u. of scarce resource is crucial as it is use to rank the products to determine the optimum production plan/schedule. Priority is given to products with highest contribution p.u. of scarce resource. Fixed costs – whether p.u. or in total doesn’t change regardless of the units of production. Key factor analysis is similar to throughput accounting when a business is faced with just one limiting factor.

  12. Hi,John.I have a question about example 1.To figure out A and B which is better,why not from this point of view:the profit of per machine hour for A is $1 per machine hour,but for B is $2 per machine hour.Obviously,B is better.Is it correct to think from this point of view?

    • No – it is certainly not correct to think from that point of view and you need to watch the lecture again.

      However the fixed overheads have been absorbed on a per unit basis, the total fixed overheads will remain the same however many units we end up producing.
      It is only the total revenue and total variable costs that will change with the production and therefore the decision must be based on the contribution per hour.

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