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PM Chapter 12 Questions Quantitative analysis in budgeting

 

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      • 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?

  4. 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.

    • 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?

  6. 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

    • 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.

      • 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

    • 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.

  7. 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)

    • 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.

      • Sir,I am confused as well by Q2
        If you need to calculate the time for 7 units you need to take the time for 8 and then subtract the hrs spent for the first right?

        So

        1 unit 42 hrs
        2 units average 33.6
        4 units average 26.88
        6 units average 21.504
        8 units average 17.20

        I thought I should calculate average 17.20*8units= 137.26 hrs and then take off 42 hrs = 95.62 hrs
        Please can you explain again exactly why you multiplied by ^3

        Thanks

      • 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?

      • Yes I watched them but still I was multiplying by 2 instead of doubling ! My bad, dumb mistake thanks for taking time to explain 🙂

      • 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

      • 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).

  9. 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 ?

  10. 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

      • 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.

      • 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

      • 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).

    • 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 🙂 )

    • 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)

      • 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

    • 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 🙂 )

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