FM Chapter 8 Questions – Relevant cash flows for DCF
Reader Interactions
Comments
Leave a Reply
You must be logged in to post a comment.
Free ACCA & CIMA online courses from OpenTuition
Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams
20% off ACCA & CIMA Books
OpenTuition recommends the new interactive BPP books for December 2025 exams.
Get your discount code >>
In question 1, the answer should be $6,000, as it says ‘The current workforce is already fully employed’ so we’re bearing their costs anyway and it shouldn’t appear as a cash flow for the project.
No, the answer is not $6000 at all. If the contribution is $12 per hour, then the revenue from the current work must be $22 per hour (since contribution = seventeen minus variable cost). Therefore by moving the labour to other work they are losing $22 per hour.
Have you watched our free lectures on relevant costing?
Hello Sir John, thanks for your reply.
I believe the wording is confusing me a bit. I have watched the lectures yes.
In this case am I not bearing the cost of the employees of $10 per hour whether I go ahead with the project or not? As question says that the workforce is fully employed, therefore the company will be moving them to another project if this one doesn’t get the go ahead.
Isn’t this like chapter 8 example no. 1 in the lecture notes? Where we didn’t take into consideration the cost of labour as it was going to be used for another project anyway?
Appreciate your reply!
Labour will indeed be paid anyway.
All that will change by moving them to the new project is that the current revenue will be lost, and they are currently receiving revenue of $22 per hour.
On question 2 the answer states 5000×1/0.769231 = 6,500 should it not be 5000×1/0.0769231= £65,000?
True – it is obviously a typing error in the workings, but the answer is correct 🙂
Add more practice questions
You can find lots of practice questions by buying an Exam Kit and by using the Study Hub on the ACCA website.
100%