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While you are correct that production volume has changed, the problem explicitly provides a specific estimate for the number of orders based on the new system’s impact on last year’s figures.
In professional examinations, if a specific estimate or probability is given for a cost driver’s quantity – number of orders, that instruction overrides a general assumption of volume-based variability.
The “number of orders” is often treated as a step-fixed or batch-level cost driver.
Unless a specific units per order ratio is provided, you must follow the provided estimates for the activity level itself.
As explained in the lectures on this, you cannot now be expected to draw a decision tree in the exam (although you can be tested that you understand decision trees).
The answer to part (b) must start with the results from the geologist, because what she says will affect the decision about whether or not to drill.
As explained in the lectures on this, you cannot now be expected to draw a decision tree in the exam (although you can be tested that you understand decision trees).
The answer to part (b) must start with the results from the geologist, because what she says will affect the decision about whether or not to drill.
Mark up is on top of cost
So if cost is $450 and mark up 5%
1 + Mark up
that means $450 * 1.05
= the selling price is $472.50Margin of 5%
If the cost is $450 / 1 – Margin
Whilst 1 – Margin= 1 – 0.05
So 450/ 0.95 = $473.68To calculate the life-cycle cost per unit, you must first find the total costs incurred over the entire life of the product and then divide that total by the total number of units produced over the entire life.
Here is the correct mathematical approach:
1. Calculate Total Units 2,000 + 5,000 + 7,000 = 14,000
2. Calculate Total Variable Production Costs $ 22,000
3. Calculate Total Variable Selling Costs $5,800
4. Calculate Total Fixed Costs $ 17,300
5. Calculate Total Life-cycle Cost $ 22,000 + $5,800+ $17,300 =$ 45,100
6. Calculate Life-cycle Cost per Unit $ 45,100 / 14,000 = $3.22In life-cycle costing, you must aggregate the total wealth consumed (total dollars) and spread it over the total benefit created (total units).
Simply adding the per-unit costs from different years does not make sense because the fixed costs are spread over different activity levels in each year.
Well start with the opening balance of 3,800,000 which at 0.05% means o/d interest for period1 is -19000
So net cashflow is rec 4,220,000-pay 3,950,000 -o/d int 19000 = net cash flow of 251,000
Op bal (3,800,000) net cash flow 251,000 = 3,549,000
Same process again ….period 2
Opening balance of 3,549,000 which at 0.05% means of interest for period1 is -18000
So net cashflow is rec 4,350,000-pay 4,100,000 -o/d int 18000 – bank loan int 200,000= net cash flow of 32,000
Op bal (3,549,000) net cash flow 32,000 = 3,517,000
It is possible to apply for both. They are very different subjects to do.
PM – is management accounting to aid in business planning, decision-making, and control. Covers budgeting, standard costing, variance analysis, performance measurement, and CVP analysis (breakeven).
FM – teaching you the knowledge and skills of a finance manager to make crucial investment, financing, and dividend policy decisions for a business, covering areas like working capital, cost of capital, investment appraisal, business finance, and risk management.
We posted on
May 6, 2022 at 4:01 pmThere was a time many years ago that correlation and time series were not examined in Paper MA (was F2) and so were first examined in Paper PM (was F5). In those days they did often appear in the Paper PM exam.
They were then brought into the syllabus for Paper MA, and therefore were automatically examinable in Paper PM (because Paper PM can include anything from Paper MA, even though they were not explicitly listed separately in the Paper PM syllabus). Now they have been specifically listed just to make it clear, but as is written in the introduction section of Chapter 12 of our PM lecture notes, it remains unlikely that you will be asked detailed calculations, but if you have forgotten them you should watch the free Paper MA lectures on them.
The Paper PM lecture will not therefore be updated to include them again.
(I appreciate that you might have been exempt from Paper MA, in which case you should have been taught these areas in your degree course, but again there are full free lectures on them in Paper MA ? )
Nominal NPV Calculation
When calculating the nominal NPV, you should inflate all cash flows (sales, variable costs, and fixed costs) using their specific inflation rates. This means you apply the specific inflation rates to each cash flow item to arrive at the nominal cash flows. Then, you discount these nominal cash flows at the nominal cost of capital.
Real NPV Calculation
For the real NPV, the approach is different. You typically do not inflate the cash flows. Instead, you would use the general inflation rate to adjust the nominal cash flows to real cash flows. This involves deflating the nominal cash flows by the general inflation rate to remove the effects of inflation. After obtaining the real cash flows, you would discount them at the real cost of capital.
General vs. Specific Inflation
The general inflation rate is used to convert nominal cash flows to real cash flows when calculating the real NPV. In contrast, specific inflation rates are applied to individual cash flow items when calculating the nominal NPV.
Different Questions
In the case where only a general inflation rate is provided, you would use this rate to calculate the nominal NPV directly. For the real NPV, you would not apply any inflation, as you are working with real cash flows.
As I said
In the real exam questions will clearly state requirements of the question
Part A or BRound to 1 decimal
Or round to a whole number
Etc….As I said
In the real exam questions will clearly state requirements of the question
Part A or BRound to 1 decimal
Or round to a whole number
Etc….Unfortunately it is in the syllabus
D 2bAll areas of the syllabus could be examined
I do not think you should topic pickThe examiners ensure all areas of the syllabus are examined over the time periods.
So eventually everything is covered either in Part A, B & CWe might say it’s not a popular topic not that it “definitely” won’t be examined
In the real exam questions will clearly state requirements of the question
Part A or BRound to 1 decimal
Or round to a whole number
Etc….What is the question asking for? It is a rather odd thing for them to ask, we agree with you!
You have to display your knowledge of understanding of the question requirements and what to do.That is why in almost all questions we simply discount the nominal flows at the nominal cost of capital. We only deflate and use the real cost of capital if the question specifically asks for it.
The ‘real’ cash flows are derived by deflating nominal cash flows, including working capital, at the general rate of inflation. It is also worth noting that tax is applied to inflated cash flows, which can create a mismatch if not handled correctly. The safest approach in exams is to deflate the net cash flows (after tax) to ensure consistency.
If the examiner’s method appears to create confusion for you state any assumptions you make in your answer.
By clearly stating your assumptions and adhering to the standard practice of deflating net cash flows, you can present a well-reasoned answer that demonstrates your understanding of these principles.
You do whatever you feel is right, you will still get marks.If the question specifies that interest is about to be paid, then you would calculate the cum-interest market value by adding the interest amount to the ex-interest market value.
If nothing is stated, you typically assume the market value is quoted as ex-interest.
Similarly, if the question indicates that a dividend is about to be paid, you would calculate the cum-dividend market value by adding the dividend to the ex-dividend market value.
Again, if the question does not specify, the market value is assumed to be ex-dividend.
Similarly, if the question indicates that a dividend is about to be paid, you would calculate the cum-dividend market value by adding the dividend to the ex-dividend market value.
Again, if the question does not specify, the market value is assumed to be ex-dividend.
The price demand equation is P = 150 – 0.05Q
Therefore the marginal revenue is 150 – 0.10QFor maximum profit, 150 – 0.10Q = 45
0.10Q = 105
Therefore Q = 1,050Where is this question from?
It is important not to write out a full question expecting an answerIn answer to your question I think you should include the disposal cost in the calculation. The disposal cost is a relevant cost that will be incurred if the company continues production and needs to wind up operations at the end of the product’s life cycle.
You must not use this as an answering mechanism for lots of questions you have clearly not watched our relevant lectures, paid attention to your tutor. My advice is do not it try and learn by looking at past questions.
Get a good understanding of the paper first.
Our role is not to give private tuition and therefore you must watch the free lectures. If you expect answers from us, then you should clearly state the question individually and say why you are struggling with it.
Stating that your tutor had set you them to do but hadn’t give you the answers makes me think you think you misunderstood what we are about.
Can you make your questions clearer if you want our help please
Don’t put two or three questions together
Where are these questions from?
Please do not simply type out a full question and expect to be provided with a full answer.
Explain what it is you are struggling with.Surely you must have an answer in the same book/exam/hub which you found the question. So ask about whatever it is in the answer that you are not clear about and then I will explain.
The first question is a convertible debt question that requires you to work out the conversion value and then using the IRR which you know equals zero gives you the balancing figure of MV of debt.
The second one is testing your understanding of DVM
The third one is testing your understanding of EMH
You can find everything needed to be able to answer these questions in our free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
