PM Chapter 12 Questions Quantitative analysis in budgeting
83 Comments
A
Andrii·
In my opinion, Q2 has to be 172 hours.
I have done both ways table and formula and it comes to 172h for 8 units.
Formula: =42*8^-0.3219 = 21.51 hour for 1 unit
21.51 * 8 = 172.04 for 8 units.
Same result is for table
Units Hours per unit Total hours
1 42.000 42.000
2 33.600 67.200
4 26.880 107.520
8 21.504 172.032
J
John MoffatTutor·
As is explained in the answer (which appears if you click on ‘review quiz’ after submitting your answers), 172 hours is the total time for 8 units. They have already made 1 unit and the question asks for the time for the next 7 units. That is the total time for 8 less the time already taken for the first unit.
B
Bashir·
Hello John,
For question 4, why is the option 1 not correct. In the multiple product profit volume chart, we drew lines for contribution of each product. Ranking them based on their contribution per unit of scarce resource.
S
Sohaibb·
Hey I have the same confusion, Can you please explain it to me if you learned it?
J
John MoffatTutor·
It doesn't show the breakeven for each product separately.
S
Shann·
Hi Sir,
Can you say why for question #3 we used $885,120 (units 19,200) instead of 883,200 (20,160 units) ?
K
Kriszta·
@shannLam
We take the highest and lowest outputs (i.e. units produced) and the costs related to those outputs.
In the example, highest output is 22,080 , lowest output is 19,200 so we take the related $960,000 and $885,120, respectively.
highest output - lowest output / cost of highest output - cost of lowest output = cost/unit
S
Shann·
@ Kriszemrich Thank you for your assistance.
A
Atika·
where did you get^3 from question 2. please can someone explain the question.Thank you
J
John MoffatTutor·
Making another 7 means that they are making 8 in total. Making 8 involves doubling 3 times.
Have you watched the free lectures on this?
A
Anusha·
June 2023 PM exam question:
Hi Sir,
Could you please give me the solution for this one:
The fixed costs have increased from $ 40,000 to $ 120,000 and the variable cost increased from $12 per unit to $22 per unit. Then what would be the number of units?
J
Jelisa·
100% this time :) Thank you for these lectures. It's really helpful to have the background explained rather than just reading from my textbook!
J
John MoffatTutor·
Thank you for your comment :-)
H
Hamza Lad·
QN 3. High Low methods;
UNITS COST
High 22,080 960,000
Low 19,200 883,200
But, Sir! You used lowest cost as 885,120 why?
J
John MoffatTutor·
We use the highest and lowest number of units, as explained in the lectures.
S
Somuto·
You said in the lectures that we use "the highest and lowest" dependent variable, which is why I used High: 22,080 (units) 960,000 (total overheads)
Low: 20,160 (units) 883,200 (total overheads).
So how exactly do we determine the High and Low? Dependent or independent variable?
K
KEVIN·
Sir, Why do we have a CVP question in number 4? I understood all !! Great test !!
J
John MoffatTutor·
Well questions in the real exam are on everything in no particular order :-)
K
KEVIN·
Sir In question 1,
We could have solves the same problem by:
r x 18 x 2 = 18+10
r = 28/36
= 78% ( Ans) right?
J
John MoffatTutor·
Yes, but that is exactly the same as what is written in the solution!
B
Biseko·
Hi Sir,
For question number 5, I think, budget preparation is faster for Bottom up approach because each manager makes their own budget, and the specialization makes it faster rather than the top management making the budget for all the junior managers. On the other hand, in bottom up approach there is a risk of budget padding hence the information input is accurate. Am I wrong to think this way?
Thank you.
J
John MoffatTutor·
Bottom up is not likely to be faster, because it takes time for each manager to prepare their own budgets and then for the person in overall charge to make sure that they 'fit' together. Top down is likely to be faster because all the budgets are prepared centrally.
There is a risk of budget padding and it it up to the person in overall charge to try and remove this. However the individual managers have more knowledge of what happens in their department and therefore portantially the information input will be more accurate.
Have you watched my free lectures on all of this?
B
Biseko·
Thank you sir, I get it now. Just wanted clarity on my thought process. And yes, I have watched your free lectures and are really helpful.
J
John MoffatTutor·
You are welcome :-)
H
Hermela·
thank u sir after i watch ur lecture i get 100% but i have still doubt on number 4 question, on statment 1 i cant get what it want to say
J
John MoffatTutor·
It refers to a profit volume chart, but says that it shows the contribution. A profit volume chart is showing the profit, not the contribution.
M
marni28·
Dear All,
can you help with this one as I find is tricky:
90% learning curve applicable, the time taken for first unit- 7 hours
What is the total time taken in hours for unit 5 to 8?
a) 17.078
b) 18.144
c) 19.590
d) 20.142
would much appreciate your help
J
John MoffatTutor·
You must ask this kind of question in the Ask the Tutor Forum and not as a comment on a test.
(I do assume that you have watched the free lectures on learning curves?)
C
Chukwunonso·
I got 18.144 which is option B i did this by using the formula for each of 4 5 and 6 7 8 units, subtracted them accordingly to get the hours for the 4th,5th,6th,7th and 8th individually and summed them up. I see no other way.
V
Vidhi Dhakan·
Hi tek77,
Can you please explain me also I am trying to get answer but am not able to get it. Can you please give me solution how u get that answer.
Thanks in advance
P
poddubny·
Hi Marni28,
I assume you already got the answer, but for those who didn't get it, please find my calculation below:
you can apply the doubling method.
a. identify how much hours there will be spent in order to produce:
1 unit ___7 hours (average)_____7 hours (total)
2 unit ___(7*0.9)=6.3 (average__(6.3*2)=12.6 (total) (power: 2^1)
4 unit ___(6.3*0.9)=5.67 (avrg)__(5.67*4)=22.68 (total) - (power: 2^2)
8 unit ___(5.67*0.9)=5.103 (avrg)_(5.103*8)=40.824 (total) - (power: 2^3)
b. subtract total time producing 4 units (22.68) from the total time spent on 8 units (40.824) = 18.144 - this is your answer.
you could also apply a faster way of calculating: y=axr^(power_)
a. 8 units = 7*8*0.9^3 = 40.824
b. 4 units = 7*4*0.9^2 = 22.68
c. subtract a-b= 18.144 - this is your answer.
B
briandean2002·
Q1 is very confusing, I got 56% as the answer.
Allow me to rewrite the question to illustrate my point.
A company is intending to produce a new product.
They have produced one test unit which took 18 hours. The learning curve is 56%
How many hours will the second product take to product (to the nearest hour)?
A: 5 hours
B: 3 hours
C: 14 hours
D: 10 hours (correct answer)
J
John MoffatTutor·
What you have written is wrong!
The doubling rule applies to the average time per unit.
If the first takes 18 hours and the second takes 10 hours, then the average time per unit is (18 + 10)/2 = 14 hours.
Using the doubling rule, if the learning rate is r, then the average time per unit if 2 are made = 18 x r = 14. So r = 0.78 (or 78%)
If the learning rate was 56% then the average time per unit if 2 were made would be 18 x 0.56 = 10 hours. This is NOT the time for the second unit, but the average time per unit is we make 2. So the total time for 2 units is 2 x 10 = 20 hours.
Since the first unit took 18 hours, the time for the second = 20 - 18 = 2 hours.
I do suggest that you watch the free lectures on this.
B
briandean2002·
Thank you!
I understand it now.
H
hitsui·
Sir, so if we are asked about more than 2 units for example 4 or 8, we'll do it the same way you just did right?
J
John MoffatTutor·
You are welcome :-)
B
blgl·
Q2?sir?I don't understand the0.8^3
why is it 3?
thanks!
J
John MoffatTutor·
Because to make 8 in total means doubling 3 times.
Have you not watched the free lectures on this?
J
John MoffatTutor·
Your table is wrong. When using the doubling rule, it is 1 unit, then 2 units, then 4 units, then 8 units. You cannot get 6 units by doubling.
Because it is doubling 3 times (1 to 2; 2 to 4; 4 to 8) you can set up a table as you have done, or (faster) take 42 to the power of 3. (^3 is the standard way of typing 'to the power of 3')
Did you not watch the free lectures before attempting the test?
J
John MoffatTutor·
No problem :-)
N
Nikuze Mukundenkase·
thanks a lot sir
to this question 2 i thought l could :
calculate the cumulative average time of first seven units and make the total by multiplying by seven .
calculate cumulative average time of first 6 units and make a total by multiplying by 6
and then finally l make difference between total of seven units and six units to find the taken to make seven unit
thank you
J
John MoffatTutor·
What you are doing would give the time for the 7th unit, but that is not what the question is asking for. It asks for the total time for the next 7 units (which is the total time for 8 units less the time for the first unit).
A
ali·
Activity level 800 units 1200 unit
Total cost $16400 $23600
The fixed cost of the business step up by 40 % at 900 units
What is variable cost per unit
A : $8.00
B : $18
c : $19.67
d: $20:00
sir this is the question about high low method from kaplan practice question i calculate variable cost $18 but answer saying its $8.
is there anything i missing ?
J
John MoffatTutor·
Kaplan's answer is correct, but ask in the Ask the Tutor Forum and I will explain (not as a comment on a lecture).
R
raheelislam·
sir for q1, the average time per unit for 2 units = (18 + 10) / 2 = 14 hours so what i am getting it that for 2nd unit we require 14 hours that is average time and if there are 3 units so we divide it by 3 for average and the answer would give the average time required specifically for making 3rd unit..is i am right
J
John MoffatTutor·
No, you are not right.
You need to watch my lectures on learning curves.
P
prati·
That's the tabular approach in in learning curve use only when production doubles. To solve the problem of calculating time for the 3rd or 5th unit u need to use the formula - y = axb (y is average time per unit to produce x units, a is time taken for the first unit, x is the total number of units and be is to the power: log the learning curve over log 2) of course u can use the formula on even number of units. I have tried it ?Hope this helps.
P
prati·
*That's the tabular approach use in learning curve only when production doubles
J
John MoffatTutor·
Which is as I explain in my free lectures. It is important to watch the lectures before attempting the tests.
R
rcbudhu·
Referring to Question 3 in this practice questions,
Using the highlow method sir I thought it was supposed to be 960000-883200 not 885120 that you use
J
John MoffatTutor·
No - you use the highest and lowest levels of production.
P
prati·
Sir the cost for the lowest production shouldn't be the lowest cost overall. Yes I have use the lowest and highest production levels but by right automatically the cost suppose to be the lowest and highest for the levels of production selected. However the lowest cost there is not under the lowest units produced. Rather it's under the level of production of 20,160
J
John MoffatTutor·
You should watch my free lectures on the high-low method. We use the costs for the highest and lowest production levels (regardless of whether or not they are the highest and lowest costs).
P
prati·
Okay sir thank u. U are really doing a good job.
J
Jonathanforstudying·
Hi Sir, i don't think question 4 is covered in the lecture right? i don't remember learning it.
J
Jonathanforstudying·
ok i get it, it is from chapter 11 instead.
J
John MoffatTutor·
I am glad you have got it :-)
J
Jonathanforstudying·
Thank you Sir
J
John MoffatTutor·
You are welcome :-)
O
ogunseye·
Using the highlow method sir I thought it was supposed to be 960000-883200 not 885120 that you used.
Or am I getting this wrong sir?
J
John MoffatTutor·
Which question are you referring to?
K
khadijaali·
Q3 sir I believe the lowest vc is $ 883,200 not $ 885,120
Please explain further
Thanks
Khadija
J
John MoffatTutor·
We use the highest and lowest of the independent variable, which is units in order to decide which months to use.
The answer is correct, and do watch the free lecture on this.
A
Aamir·
isn't the question 3 in practical questions of quantitative analysis of budgeting actually from CVP?
J
John MoffatTutor·
No - it is testing the high-low method (which is covered in our lectures on quantitative analysis).
A
Aamir·
Thanks.
A
Aamir·
And what about question 4? Multi product profit volume charts?
C
ckinnrossli·
sir, why 0.8^3? i didn't get where is 3 comes from.
J
John MoffatTutor·
Because 8 involves doubling 3 times.
I do suggest that you watch the free lecture, which explains the doubling rule and works through an almost identical example.
(You should not attempt the tests unless you have watched the relevant lecture first :-) )
A
ali imran·
In Q.2 by solving Y = axb formula we get :42*7^-.321928=22.448. But this is wrong. plz identify my mistake.
Thank you.
J
John MoffatTutor·
What you are calculating is the time for the first 7, which is not what is asked for.
The have already made 1, and so another 7 means a total of 8. The only way you can do it is to calculate the time for the first 8 and subtract the time for the first.
By all means use the formula, but it is faster to use the doubling rule (especially since you are not given a value for b - it is always given in the exam if you need to use the formula), and, of course, you need to be able to use the doubling rule anyway because you can be specifically tested on it.
I do suggest that you watch our free lectures on learning curves where all of the above is explained, with examples.
(Our lectures are a complete course for Paper F5 and cover everything you need to be able to pass the exam well)
A
ali imran·
Ok,
got it,
Thanks.
J
John MoffatTutor·
Great :-)
R
Renee·
Question 2 how was the decimal 0.83 arrived at?
J
John MoffatTutor·
Oops - it is a typing error.
The average time per unit for 8 units = 42 x 0.80^3 = 21.504
Everything else in the solution is fine.
I will have it corrected.
J
jasmine·
Hi Sir, the first took 18 hour and second took 10 hour , how calculate the learning rate?
J
John MoffatTutor·
The average time per unit for 2 units = (18 + 10) / 2 = 14 hours
Therefore the learning rate = 14/18 = 0.78 (or 78%)
T
triplec·
Mr.John,
With regard to Q1, the second unit takes 10 hrs which means 18 * r^1. That gives r = 56%. Please correct me if I am wrong. Also, when we deduct 56% from 18, it gives 10 hours which is what it takes for the second unit.
Thanks,
Sathish
M
mohsin1525·
Sir kindly also update the calculations workings for arriving at a particular solution especially for the numerical
J
John MoffatTutor·
The current software does not allow for the calculations to be shown (which is why you should ask here if you have a problem and then I will explain).
When we can afford to upgrade the software then the calculations will appear, but given that we provide all this free of charge there is obviously a limit as to what we can afford :-) )
S
Steven·
Hi Sir, not sure I understood the question here - using high low wouldn't you end up with a vc of 1.81 hence having a formula tc = fc + vc
960000= Fc + 22080(1.81)?
J
John MoffatTutor·
I don’t know where you got 1.81 from.
Using high low, the variable cost = (960,000 – 885,120) / (22,080 – 19,200) = 26 per unit.
(The Paper F2 free lectures on high-low will help you)
M
maamaan·
but the lowest of tatal overheads is 883200 not 885120 please recheck sir
I have done both ways table and formula and it comes to 172h for 8 units.
Formula: =42*8^-0.3219 = 21.51 hour for 1 unit
21.51 * 8 = 172.04 for 8 units.
Same result is for table
Units Hours per unit Total hours
1 42.000 42.000
2 33.600 67.200
4 26.880 107.520
8 21.504 172.032
For question 4, why is the option 1 not correct. In the multiple product profit volume chart, we drew lines for contribution of each product. Ranking them based on their contribution per unit of scarce resource.
Can you say why for question #3 we used $885,120 (units 19,200) instead of 883,200 (20,160 units) ?
We take the highest and lowest outputs (i.e. units produced) and the costs related to those outputs.
In the example, highest output is 22,080 , lowest output is 19,200 so we take the related $960,000 and $885,120, respectively.
highest output - lowest output / cost of highest output - cost of lowest output = cost/unit
Have you watched the free lectures on this?
Hi Sir,
Could you please give me the solution for this one:
The fixed costs have increased from $ 40,000 to $ 120,000 and the variable cost increased from $12 per unit to $22 per unit. Then what would be the number of units?
UNITS COST
High 22,080 960,000
Low 19,200 883,200
But, Sir! You used lowest cost as 885,120 why?
Low: 20,160 (units) 883,200 (total overheads).
So how exactly do we determine the High and Low? Dependent or independent variable?
We could have solves the same problem by:
r x 18 x 2 = 18+10
r = 28/36
= 78% ( Ans) right?
For question number 5, I think, budget preparation is faster for Bottom up approach because each manager makes their own budget, and the specialization makes it faster rather than the top management making the budget for all the junior managers. On the other hand, in bottom up approach there is a risk of budget padding hence the information input is accurate. Am I wrong to think this way?
Thank you.
There is a risk of budget padding and it it up to the person in overall charge to try and remove this. However the individual managers have more knowledge of what happens in their department and therefore portantially the information input will be more accurate.
Have you watched my free lectures on all of this?
can you help with this one as I find is tricky:
90% learning curve applicable, the time taken for first unit- 7 hours
What is the total time taken in hours for unit 5 to 8?
a) 17.078
b) 18.144
c) 19.590
d) 20.142
would much appreciate your help
(I do assume that you have watched the free lectures on learning curves?)
Can you please explain me also I am trying to get answer but am not able to get it. Can you please give me solution how u get that answer.
Thanks in advance
I assume you already got the answer, but for those who didn't get it, please find my calculation below:
you can apply the doubling method.
a. identify how much hours there will be spent in order to produce:
1 unit ___7 hours (average)_____7 hours (total)
2 unit ___(7*0.9)=6.3 (average__(6.3*2)=12.6 (total) (power: 2^1)
4 unit ___(6.3*0.9)=5.67 (avrg)__(5.67*4)=22.68 (total) - (power: 2^2)
8 unit ___(5.67*0.9)=5.103 (avrg)_(5.103*8)=40.824 (total) - (power: 2^3)
b. subtract total time producing 4 units (22.68) from the total time spent on 8 units (40.824) = 18.144 - this is your answer.
you could also apply a faster way of calculating: y=axr^(power_)
a. 8 units = 7*8*0.9^3 = 40.824
b. 4 units = 7*4*0.9^2 = 22.68
c. subtract a-b= 18.144 - this is your answer.
Allow me to rewrite the question to illustrate my point.
A company is intending to produce a new product.
They have produced one test unit which took 18 hours. The learning curve is 56%
How many hours will the second product take to product (to the nearest hour)?
A: 5 hours
B: 3 hours
C: 14 hours
D: 10 hours (correct answer)
The doubling rule applies to the average time per unit.
If the first takes 18 hours and the second takes 10 hours, then the average time per unit is (18 + 10)/2 = 14 hours.
Using the doubling rule, if the learning rate is r, then the average time per unit if 2 are made = 18 x r = 14. So r = 0.78 (or 78%)
If the learning rate was 56% then the average time per unit if 2 were made would be 18 x 0.56 = 10 hours. This is NOT the time for the second unit, but the average time per unit is we make 2. So the total time for 2 units is 2 x 10 = 20 hours.
Since the first unit took 18 hours, the time for the second = 20 - 18 = 2 hours.
I do suggest that you watch the free lectures on this.
I understand it now.
why is it 3?
thanks!
Have you not watched the free lectures on this?
Because it is doubling 3 times (1 to 2; 2 to 4; 4 to 8) you can set up a table as you have done, or (faster) take 42 to the power of 3. (^3 is the standard way of typing 'to the power of 3')
Did you not watch the free lectures before attempting the test?
to this question 2 i thought l could :
calculate the cumulative average time of first seven units and make the total by multiplying by seven .
calculate cumulative average time of first 6 units and make a total by multiplying by 6
and then finally l make difference between total of seven units and six units to find the taken to make seven unit
thank you
Total cost $16400 $23600
The fixed cost of the business step up by 40 % at 900 units
What is variable cost per unit
A : $8.00
B : $18
c : $19.67
d: $20:00
sir this is the question about high low method from kaplan practice question i calculate variable cost $18 but answer saying its $8.
is there anything i missing ?
You need to watch my lectures on learning curves.
Using the highlow method sir I thought it was supposed to be 960000-883200 not 885120 that you use
Or am I getting this wrong sir?
Please explain further
Thanks
Khadija
The answer is correct, and do watch the free lecture on this.
I do suggest that you watch the free lecture, which explains the doubling rule and works through an almost identical example.
(You should not attempt the tests unless you have watched the relevant lecture first :-) )
Thank you.
The have already made 1, and so another 7 means a total of 8. The only way you can do it is to calculate the time for the first 8 and subtract the time for the first.
By all means use the formula, but it is faster to use the doubling rule (especially since you are not given a value for b - it is always given in the exam if you need to use the formula), and, of course, you need to be able to use the doubling rule anyway because you can be specifically tested on it.
I do suggest that you watch our free lectures on learning curves where all of the above is explained, with examples.
(Our lectures are a complete course for Paper F5 and cover everything you need to be able to pass the exam well)
got it,
Thanks.
The average time per unit for 8 units = 42 x 0.80^3 = 21.504
Everything else in the solution is fine.
I will have it corrected.
Therefore the learning rate = 14/18 = 0.78 (or 78%)
With regard to Q1, the second unit takes 10 hrs which means 18 * r^1. That gives r = 56%. Please correct me if I am wrong. Also, when we deduct 56% from 18, it gives 10 hours which is what it takes for the second unit.
Thanks,
Sathish
When we can afford to upgrade the software then the calculations will appear, but given that we provide all this free of charge there is obviously a limit as to what we can afford :-) )
960000= Fc + 22080(1.81)?
Using high low, the variable cost = (960,000 – 885,120) / (22,080 – 19,200) = 26 per unit.
(The Paper F2 free lectures on high-low will help you)