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KODIAK COMPANY ( DEC 09 ADAPTED )
– in the answer, it says that cost of sales will grow by 9% and the question says that ‘ revenue and variable costs are projected to grow at 9% per annum’ . From my understanding, cost of sales also consist of overhead and etc but the question just assume those cost are variable ?
– Moreover, in the answer working 2, why can’t we use net book value to get the depreciation amount ? i dont quite understand why we have to use gross value of non current asset.
Overheads may be variable or fixed. Per the question, the variable overheads will grow at 9% and the fixed overheads will grow at only 6%.
The question says that they use the straight line basis for depreciation, and you should remember from Paper F3 that the straight line basis calculates the depreciation on the original cost.
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