[wilder]

That helped, thank you.

1 last question… question in PM ACCA article (title – material mix and yield variance)

Important parts extracted from the article – 8 litres of A and 12 litres of B will yield 19 litres of C. Suppose 1850 kg of C is produced, using a total of 900 kg of material A and 1100 kg of material B (2000 kg in total). The actual cost of material A and B were at the standard cost of $20 and $25 per kg respectively. Loss rate of 5%.

Not sure on how to calculate the yield variance. The answer is $1200 (A), whereas I get $1219 (A)

My working

Actual total input @std mix

Material A 800 kg * $20 = $16000
Material B 1200 kg * 25 = $30000
Total 2000 kg – $46000

Std total input at std mix for actual output

If output was 1850 kg, then the input must have been 1947 kg (1850 * 100/95).
Material A and B (of 778.8 and 1168.2) proportioned according to the standard mix

Material A – 778.8 kg * $20 = $15576
Material B – 1168.2 kg * $25 = $29205
Total = 1947kg – $44781

Yield variance = $44781 – $46000 = $1219 (A)

[wilder]

Now its clear…

Thank you 🙂

[wilder]

Noted. But I am not sure whether I understood you correctly.

If a company is paying interest than why would it look for substitute fixed interest debt (in market) so as to arrive at a cost of debt ?

Shouldn’t the company just check the interest it has paid in financial statement, suppose a company has a floating rate debt and the interest paid (according to financial statements) is $100 and the bank loan is $1000, then the cost of debt will obviously be 10%. So why find a substitute ?

Just trying to understand rather than learning the rules!

Please shed some light.

[wilder]

Now it makes sense. Thank you

[wilder]

Thank you 🙂

[wilder]

Sorry, I keyed the incorrect solution (for question 2). This question is in Kaplan exam kit question 72.

As for question 2, the relevant cost will be the higher of
1. The disposal value = 10kg * $0.5 = $5
OR
2. Its alternative use = 10 kg * $6/kg = $60
Modification cost = 10kg * $2/kg = ($20)
Relevant cost = $40

Therefore, the relevant cost is $40. (correct answer as per the Kaplan exam kit)

As for question 1, the answer is $7600 (as you explained)

My question – as what I have understood so far in relevant costing is that, if an alternative use is available then, the relevant cost is the higher of
1) The disposal value of the material
2) The alternative use (this is exactly what I did for the above solution where I got the relevant cost of $40)

But, I ended up with the wrong answer if I use the same “rules” (as above). Will I be correct to say the differences between the 2 questions are,

1. in question 1, the Co has an option to buy the swipe 2 or modify the swipe 1. Obviously then the Co will choose the cheaper option (that is to modify swipe 1, as you explained)

2. the difference comes in question 2, where the Co does NOT have an option to choose between materials ie it must use material X (unlike question 1), so the relevant cost will be the higher of disposal value or its alternative use.

3. My workings for question 1 would have been correct if the question is slightly changed, for example, swipe 1 is required for the current project (cannot be replaced), but could be used as an alternative (after modifying it) to swipe 2 in other project. The rest of details are the same.
I would have been right with $6200 relevant cost (the workings in the very top of this page)

Sorry for such long queries.

Please confirm

[wilder]

Question 2
UU Co has been asked to quote for a special contract. The following information about the material needed has been given,

Material X – book value – $5/kg,
scrap value – $0.50/kg,
Replacement cost – $5.5/kg.

The contract requires 10kg of material X. there are 250kg of this material in inventory which was purchased in error over 2 years ago. If material X is modified, at a cost of $2/kg, it could then be used as a substitute for material Y which is in regular use and currently costs $6/kg.
Required- what is the relevant cost of the materials for the special contract?

Soln
The relevant cost is the higher of
1. Disposal value = $1/kg * 4kg = $4

OR

2. Alternative use $5/kg * 4kg = $20
Modification cost 5kg * 40.75 = ($3.75)
Relevant cost = $16.25 – $16.25/5 kg = $3.25

I don’t understand why my working to question 1(above) is wrong, given that I used the same “rules” to arrive at the correct answer for question 2.

Is it because in question 1, swipe 1 is not primarily required in this particular project i.e. it’s an alternative (can only be used if modified) where as in question 2, material X is required and not a substitute for the particular project. (I hope this makes sense)

Please shed some light.

[wilder]

This helped, thank you

[wilder]

Got it. Thank you

[wilder]

Just to confirm whether I understood, I have just changed the units of product X.
Assuming that 1000 units of product X are sold and the rest of details are the same (as above)

Then for product X
Profit = T. Contribution – FC
= (1000 units * $5) – $10000
= ($5000) loss

For product Y
Profit = T. Contribution – FC
= (4000 units * $2) – $5000 (i have used $5000 here because unit X could only take $5000 of FC)
=Profit = $3000

Breakeven point = 1000 units (of product X) and 2500 units (of product Y, got this figure by dividing FC by Contribution per unit = $5000/$2)

Margin of safety for product Y = 4000 units – 2500 units = 1500 units

Margin of safety for product Z = 3000 units

Kindly confirm

[wilder]

Got it. Thank you

[wilder]

Managed to login to MYACCA portal. Think its fixed

All the best !

[wilder]

Hi all,

Im having some issues logging into MYACCA portal- it shows cannot load account.

is anyone else experiencing similar problem ?

[wilder]

Noted. Thank you

[wilder]

Hi,

Please disregard the above question. I was clearly mixing up things, but now i understand !

Thanks

[wilder]

Got it. Thank you

[wilder]

Noted. Thank you

[wilder]

Thank you

[wilder]

Thank you

[wilder]

Got it. Thank you

[wilder]

Thank you

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