ACCA F5 Key Factor Analysis
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I have a question. Since the profit of $2 is given per unit, why is it incorrect to multiply it by numbe rof units produced?
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.
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?
No, because that would mean that they had already calculated how many of each they would produce 馃檪
Thanks Sir, youre the best. ????
Thank you for the comment 馃檪
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?
The total fixed cost will be unchanged, as I state in the lecture.
thanks a lot sir. this was really troubling me for some time now 馃檪
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..
Total fixed overheads, by definition, do not change with the level of production.
We assume that the costings were prepared and the overheads absorbed before knowing about the limited time, and that therefore they were done on the assumption of producing to meet the full demand.
ok sir thank you soo much.now i understand..
You are welcome 馃檪
is the key factor analysis same as theory of constraints ?
It relates to throughput accounting.
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?
It wouldn’t make any difference. The total budgeted fixed overheads must still be the total of units multiplied by absorption rates.
thank you very much
You are welcome
So in exam the question will say using key factor or throughput account? Or is there any other symptoms I can Identify which method to use?
If the question wants you to use throughput accounting, it will say so. If it does not say so then you use key factor analysis 馃檪
Thank you
Thanks John. Well explained.
Thank you for the comment 馃檪
Thank you for this helpful video. I understand this topic much better now.
Thank you for the comment 馃檪
In calculating the maximum or total contribution for each product we use the contribution p.u. for each product and not the contribution p.u. of scarce resource for each product.
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.
The approach is the same, but the enormous difference with throughput accounting is that we assume all costs are fixed except for materials.
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.
Thank you for explaining.Now I fully understand this.It’s really of great help of me.Thank you again.
You are welcome 馃檪
What is the difference between fundamental and professional syllabus?
Which exam? The syllabuses are completely different for each exam and you can find them all on the ACCA website. The P exams are obviously at a much higher level than the F exams.
(Why have you asked this as a comment on a lecture on key factor analysis? You should ask this sort of question in the forums.)
Thank you.