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app revision kit- Q22.4 and 22.5

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › app revision kit- Q22.4 and 22.5

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.
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  • November 11, 2015 at 6:03 am #281639
    amelia69
    Member
    • Topics: 25
    • Replies: 7
    • ☆

    Dear Sir, could you please explain to the answers for the above questions:

    Q 22.4 with the change in production method, variables costs will fall from 40% of sales to 36%?

    Q 22.5 …….variable cost would add £2 to profit for each kg of material bought and used, how do I get the £2?

    Many thanks

    November 11, 2015 at 8:32 am #281659
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    22.4

    Currently, because the CS ratio is 60%, the variable costs must be 40% of sales.
    If variable costs fall by 10% then they fall by 10% x 40% = 4% and fall to 40 – 4 = 36% of sales.

    22.5

    The shadow price is the most extra they would be prepared to pay over the normal price.
    So they would be prepared to pay up to 16 (10 + 6) per kg. They can buy for 14 per kg and therefore they will buy extra (and make extra profit of 16 – 14 = 2 per kg).

    The free lectures on both of the these topics will help you.

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