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The idea is that you are trying to find the % that gives you a zero (npv)
Choose 10% as your first guess and then either 5% or 15% as the second, depending on whether the NPV at 10% was positive or negative.
For Section C questions there is no need to make two guesses anyway. It is more sensible to use the IRR function in the spreadsheet that is provided.
It is essential that you attempt the practice CBE exams on the ACCA website and that you make sure you know what functions are available and how to use them.Links to all of the resources about this on the ACCA website are in the last chapter of our free lecture notes.
The solution deducts the depreciation of the new asset from the capital employed figure to reflect the current value of the asset after accounting for its depreciation. The old assets, while they do depreciate, are not explicitly deducted in this calculation because the focus is on the new asset’s impact on the capital employed at the start of the year.
Generally, when calculating capital employed, it is common practice to adjust for accumulated depreciation to reflect the true value of the assets. However, if the question does not specify adjustments for economic depreciation or accumulated depreciation for old assets, it may be assumed that the accounting depreciation is already factored into the profit figure, and thus no further adjustment is necessary for the capital employed.
Because it says
The vehicle could be purchased for $34,000 using a bank loan with an after-tax cost of borrowing of 4% per year. The vehicle would have a useful life of four years and would have a residual value of $14,000 at the end of that period. Straight-line tax-allowable depreciation is available on the vehicle.
So ((cost – scrap value)/useful life) * tax rate34000-14000/4x 0.2
So use relevant costs when evaluating the overall decision and include fixed costs if they are avoidable. Use variable costs only when dealing with limited resources to assess the marginal cost of production.
1. Relevant Costs: These are costs that will be directly affected by the decision at hand. When considering whether to manufacture in-house or buy from an external supplier, you should include all relevant costs, which can encompass both variable costs and avoidable fixed costs. This is particularly important when you are evaluating the total cost of production versus the cost of purchasing externally.
2. Variable Costs Only: In scenarios where there are scarce resources, such as limited labor or machine time, the focus shifts to variable costs. This is because the decision may hinge on the marginal cost of producing one more unit versus the cost of buying it. In such cases, you compare only the variable costs of making the product in-house against the external purchase price to determine the most cost-effective option.
In the Robber Co example, part A included all relevant costs because it was assessing the overall cost of manufacturing versus buying. In part B, where labour was a scarce resource, the analysis focused solely on variable costs to determine which products to prioritise for in-house production versus outsourcing.
We can’t say for sure unfortunately……
The exam structure indicates that Section C will primarily focus on working capital management, investment appraisal, and business finance & WACC.While these areas are emphasised, it is important to note that other topics, including sources of finance, can also appear in Section C questions, but they will not be substantial parts of the questions.
To effectively prepare, consider focusing on the key concepts and techniques within these areas, while also reviewing the essential knowledge related to sources of finance. Not leaving it!
Utilising rotational learning can help reinforce your understanding, but ensure you allocate time to revisit all topics periodically to retain the information.
Ultimately, while you may have preferences for certain topics, being well-rounded in your preparation will enhance your confidence and readiness for the exam.
Best of luck!Order 300
Expected Profit = 0.2 * 150 + 0.3 * 150 + 0.3 * 150 + 0.1 * 150 + 0.1 * 150 =150
Order 400
Expected Profit = 0.2 * -850 + 0.3 * 200 + 0.3 * 200 + 0.1 * 200 + 0.1 * 200 = -20=?10
Order 450
Expected Profit = 0.2 * -975 + 0.3 * 75 + 0.3 * 225 + 0.1 * 225 + 0.1 * 225 = -195 + 22.5 + 67.5 + 22.5 + 22.5 = -60
Order 500
Expected Profit = 0.2 * -1100 + 0.3 * -50 + 0.3 * 250 + 0.1 * 250 + 0.1 * 250 = -220 + -15 + 75 + 25 + 25 = -135The answer is a 300
Throughput accounting is used when the question specifically states to use it, particularly when time is the limiting factor or bottleneck.
In contrast, contribution analysis is typically used in key factor analysis unless the question indicates otherwise. If the limiting factor is something other than time, or if the question does not specify throughput accounting, then contribution should be used.
Essentially, throughput is relevant when the focus is on maximising profit based on the selling price less direct material costs, while contribution considers all variable costs.
Do as much practice as possible
TYU from textbook
Kit questions
Use ACCA study hub
Be familiar with the syllabus
Look at examiners reportsIncremental costs are those that will change as a result of a specific decision. If the fixed costs of $150,000 are necessary to produce the tig and would not be incurred if the tom is sold instead, then they are considered incremental.
However, if these fixed costs would exist regardless of the decision made (for example, if they are part of the overall operational costs that do not change with the production decision), then they are not incremental.In summary, to identify if the fixed costs are incremental, ask yourself:
Will these fixed costs be incurred only if the tig is produced?
Would these costs remain the same if the tom is sold instead?
If the answer to the first question is yes, then they are incremental costs. If the answer to the second question is yes, then they are not incremental.
In my opinion it’s a very ambiguous question
Is the answer A on the study hub?
Does it explain how it’s calculated?
Do you get that answer?I don’t think anyone should worry about it as …….
It is an OT question worth 2 marks!!!!But I will explain how it’s calculated below
That’s very nice of you to say so. I will pass it on to John.
Unfortunately syllabus area D2d – time series and regression is included so it could be examined on your understanding of the benefits and limitations of correlation, regression, time series and learning curve.
Be familiar with the ACCA syllabus and technical articles for PM – ACCA website
Perhaps refer back to
https://www.youtube.com/watch?v=rl338y34EcgAt least you worked it out. Don’t worry about asking questions that’s what we are here for.
Given the initial 2-quarter rolling budget for labour costs and the new labour regulation increasing minimum wage by $100 monthly for 3 employees, the updated rolling budget for Q2 would be $3,900.
Follow these steps:
Calculate the monthly increase in labour costs:
$100/month * 3 employees = $300 per month.Calculate the quarterly increase in labour costs:
$300/month * 3 months = $900 per quarter.Update the Q2 labour budget:
$3,000 (original Q2 budget) + $900 = $3,900.Marketing and training costs are typically considered operating expenses and should not be included in the initial capital investment when calculating NPV. Instead, they are treated as part of the ongoing operational costs of the project.
Focus on including only the incremental cash flows that directly relate to the investment when performing an investment appraisal.
So in summary
Generally, R&D costs are considered sunk costs and should not be included in the NPV calculation unless they are capitalised.
Annual fixed maintenance costs should be included if they are incremental and directly related to the project. If they are existing costs that do not change due to the project, they should not be included.
Variable should be included as they represent costs that will change with the level of production or sales related to the project.
Only incremental fixed costs that arise as a direct result of the project should be included. Existing fixed costs that do not change should generally be excluded.With regards to failing on a NPV question there must have been more areas you struggled with?
So decide what you are going to do:
I don’t know the exam question so…..I am trying to provide adviceAre you sure your timings were correct?
Did you deal with tax correctly, capital allowances and timings?
Did you used the correct discount rate?
Was there working capital in the question? Did you deal with it correctly?
You won’t have failed an exam because of one part of a question ….treatment of R&D for example
I am sorry to sayFirst usually r & d costs are generally considered sunk costs and are typically not included in the cash flow calculations for the appraisal.
However, if R&D costs are capitalised, they may be included in the initial capital investment figure but unlikely.
Therefore, the treatment of R&D costs can vary based on the specific context and accounting policies applied.
Second question where have you seen this in a question?
No you won’t get asked is my answer
Hope this helps
