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Hi,
Please see the below question numbers that I am having difficulty understanding the answers to for the Sep 16 exam paper, provided on the ACCA website.
Thank you for your help!
Questions:
1) Do you add in depreciation for life cycle costing and why since it is not a cash flow? I know that in relevant costing we don’t add it in, and thought the same theory would apply here?
2) Why is the contribution used here $18? As we need it unit contribution. I understand that 2 y is sold for 1 x but why would we not use $14. I see they have used the weighted figure, however, again, I don’t understand why they don’t use the average of 2 units as they have given the cont per unit for both x and y.
6) Would the answer not be efficiency since we’re talking about input to output, students passing exams is determined by how well they were taught (teachers = input/grades = output)?
10) Why have they taken the NBV as cash flow here? Their
13) Please explain why they have given the answer to be a? I flexed the material cost for 300 units (by: 10000/500 = 2 * 300) to achieve 6000. I even did 6500/300 = 21.67, which still doesn’t make sense as the question/answer state the price has been lowered.
20) I have tried to work out the margin of safety and cannot seem to understand how they have come to 84.6%? The BEP I see to be (70/(455/1300)) I know its FC/(TOTAL contribution/TOTAL revenue) but even if I adapt my answer I still cannot get the denominator to 0.7 as they have. Also in this question, it says that the investment is more sensitive to change in sales volume than sales price. If sales price is 29.6% and volume is to be worked out at (650/385 = 59.2%) how is it that price is more sensitive.1. With life-cycle costing we take all costs (including depreciation). Relevant costing is a different technique and is not relevant if we are doing life-cycle costing.
2. The question says they produce twice as many Y’s as they do X’s. So for every 3 units produced there is 1 unit of X and 2 units of Y. That gives a contribution of $18 for every 3 units, are an average of $6 per unit.
6. No. Effectiveness is measuring how successful they are at whatever they are supposed to be doing. Students passing depends on how well they are taught. (Do watch my free lectures on this where I explain the difference between effectiveness and efficiency)
10. They are not taking the NBV as a cash flow. For ROI we need the value of the net assets. The non-current assets on the SOFP will fall by 40,000 (the NBV of the assets sold) and cash will increase by $50,000 (the amount they were sold for).
13. The cost per unit last year was $8,000 / 400 = $20. Prices are down by 5%, so the cost per unit this year should be 95% x $20 = $19 and therefore the total cost should be 300 x $19 = $5700. Since it is actually 6,500, something has gone wrong and is poor performance.
20. The CS ratio is 455/1300 = 35% (or 0.35). Therefore breakeven revenue = 70 / 0.35 = 200. Therefore margin of safety = (1300 – 200) / 1300 = 84.6%. (you could have got the same answer doing on a unit basis, but that would take longer)
The smaller the % change that would affect the decision (i.e. the sensitivity) the more sensitive that factor is.
I do assume you are watching my free lectures – they are a complete free course for Paper F5 and cover everything needed to be able to pass the exam. Also, I do hope you have a Revision Kit from one of the ACCA approved publishers – the more practice the better in order to pass the exam.
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