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Bpp kit mock exam 4 (question 23)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Bpp kit mock exam 4 (question 23)

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • December 1, 2021 at 5:55 pm #642227
    hm1995
    Participant
    • Topics: 49
    • Replies: 11
    • ☆☆

    Hello

    Im answering the questions from bpp kit of mock exam 4 . Question number 23.

    If the shadow price for Month 2 is $125 per labour hour, which of the following statements is/are correct?
    (a) The production manager would be willing to pay existing staff a maximum overtime premium of $125 per hour for the next 2,000 hours
    (b) The production manager would be willing to pay a maximum of $170 per hour for an additional 2,000 hours of temporary staff time
    ? 1 only
    ? 2 only
    ? Both 1 and 2
    ? Neither 1 nor 2

    In the answer it says both are correct. I don’t understand how it is for additional 2000 hours?

    December 2, 2021 at 7:29 am #642264
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51585
    • ☆☆☆☆☆

    It follows on from Q22.

    When labour was limited to 12,000 hours they produced 3,000 of S and 2,000 of H.

    If they had more labour at a maximum premium of $125 they would produce more S’s, but they would not produce more H’s because the extra contribution per hour from H is only $105.

    The most extra S’s they can produce is 1,000 (because the maximum demand is 4,0000) and this would need an extra 1,000 x 2 = 2,000 hours.

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