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PM Chapter 6 Questions Limiting factors

VIVA

 

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  1. Surely the total price for the current material plus the new material is 6.70. As the question only asks how much for the new material, that should be the shadow price? So the answer to this question is 3.70 no?

  2. Dear John,

    Can we simply answer this question by using following equation:

    Most per KG for extra material = Original Cost + Shadow Price = (3 + 3.70) = 6.70

    Please let me know if there is anything wrong with the method followed.

  3. Dear John

    Please correct me if my explanation is wrong.
    To answer the question, we have to very be careful with the question asked especially the word is tricky.
    If the question asked about the Shadow Price, then the answer should be $3.70, the most extra = above the current price ( the different of old – new contribution) – ignore the current material price.
    But here the question asked about the most payment that the company prepared to pay for one extra material meaning, shadow price + current material price for one extra material ($3 + $3.70) = $6.70. Am I right?
    I have watched your lecture, a bit confused.

      • I do not see all comments on lectures – only the latest ones. In future you should ask in the Ask the Tutor Forum – I always see all questions there, and I always reply within 24 hours 🙂

        You are correct, but I am surprised you had to ask because if you review the test after submitting your answers then you see the correct answer and the explanation 🙂

  4. This is how i solve this:
    Shadow price: New Max. Contribution (MC1)-Original Marginal Contribution (MC0)
    Hence,
    ShP= $3.70
    MC1=?
    MCo=3
    Hence, MC1=$3.70+$3.0
    =$6.70

  7. But asking what the most extra u are willing to pay sounds like the extra on the current price of kilo. Which is jus the 3.70
    Unless u have to look for key words like the most extra per kg and the most extra on a kilo.

    How do we know when they would ask for the shadow price alone? Would it jus be a straightforward quest. What is the shadow price?

    • You must watch my free lectures on this (there is no point in attempting the tests without studying first 🙂 )

      I explain the definition of the shadow price in my lectures – it is the most extra (above the current cost) that we are prepared to pay for one extra unit of a limited resource.

      Do watch the lectures – they are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
      You will only pass the exam by studying the entire syllabus (either by watching my lectures or by buying a Study Text from one of the ACCA approved publishers and studying from that), and by buying a Revision Kit from one of the ACCA approved publishers and practicing every questions (and learning from your mistakes).

      • I did watch all the videos sir But my confusion was on the term *most extra*. Sounds like it’s speaking only about the extra cost paying to acquire 1 additional kilo and not the total cost to in acquiring the kilo

      • Hi there,

        In my humble opinion, you need to look for either “what is the MOST (per kg) the company is willing to pay” – as in the question above – or “what is the MOST EXTRA (per kg) the company is willing to pay” – this time, this was not the question. Had the latter term been in the question, that would have meant the shadow price per kg that is on top of the current/usual price.
        What might have confused you is the word “extra” in the question, however, that refers to the material (not the price itself).

        Hope this helps.
        Regards

      • Sir can u please try shed some light on the query I have on minimax regret. I would be grateful if u can make some clarifications

      • I think this is the answer to my question. (Do watch the lectures – they are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
        You will only pass the exam by studying the entire syllabus (either by watching my lectures or by buying a Study Text from one of the ACCA approved publishers and studying from that), and by buying a Revision Kit from one of the ACCA approved publishers and practicing every questions (and learning from your mistakes).

      • Yes. The lectures cover everything needed. The Revision Kit is full of questions for practice and practice at exam standard questions is vital.

  9. Sir, I have one question. In my exam kit there is a problem, where they give detailed explanation that the shadow price already includes material cost, so we shouldn’t add it for arriving at most to pay for limited resource. And also, there is an exercise with shadow price being equal to contribution… I am now confused and before I already tried to get it but it is still not clear to me… I listened to your lectures several times. Please, be so kind to clear this up for me. I must miss something but can’t define what exactly. Thank you so much.

    • The shadow price is calculated by finding the extra contribution generated by having one extra unit of the limited resource – I explain this in the lecture.
      With regard to the question in your revision kit, I cannot help without seeing the question. If it is in the BPP Revision Kit then tell me the number of the question.
      (But tell me in the Ask the Tutor Forum – not here!)

    • Because (as the pop up workings explain) the shadow cost is the most extra we are prepared to pay, over and above the normal price.
      I do suggest that you watch the free lectures on linear programming where this is explained.

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