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basic investment appraisal techniques

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › basic investment appraisal techniques

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by AvatarJohn Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 21, 2021 at 8:31 am #638679
    Avatarjohnbriane
    Member
    • Topics: 170
    • Replies: 159
    • ☆☆☆

    sir the below question is from the kaplan texting your understanding

    A manufacturing company is considering the production of a new type
    of widget. Each widget will take two hours to make.
    Fixed overheads are apportioned on the basis of $1 per labour hour.
    If the new widgets are produced, the company will have to employ an
    additional supervisor at a salary of $15,000 pa. The company will
    produce 10,000 widgets pa.
    What are the relevant cash flows?

    for this question the answer is only the supervisor cost of $15000… and they stated that fixed ohs are not incremental

    but what if they stated the company will produce additional 10000 units ?

    will we multiply 10000 units x 2hrs x $1 per hour = $20000

    so now will this $20000 along with the $15000 which gives a $35000 will be the total relevant cost sir ?

    October 21, 2021 at 3:45 pm #638717
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54839
    • ☆☆☆☆☆

    Fixed costs remain fixed in total by definition. Therefore it is irrelevant how many additional units will be produced – there are no extra fixed costs (other than obviously the extra supervisor).

    October 22, 2021 at 2:44 pm #638795
    Avatarjohnbriane
    Member
    • Topics: 170
    • Replies: 159
    • ☆☆☆

    ok sir thank you

    October 22, 2021 at 4:21 pm #638810
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54839
    • ☆☆☆☆☆

    You are welcome.

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘basic investment appraisal techniques’ is closed to new replies.

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