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F5 mock exam

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › F5 mock exam

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • November 30, 2015 at 3:03 am #286279
    Anuja Nair
    Member
    • Topics: 365
    • Replies: 353
    • ☆☆☆☆

    1)Epsilon has two divisions, P and Q. Division P makes a component which it can sell only to Division Q.

    Current information for division P is as follows:

    Marginal cost per unit $240
    Transfer price of component $396
    Total production and sales per year 4000 units
    Specific fixed costs of division P $ 24,000 per year

    Alpha Co has offered to sell the component to division Q for $350 per unit. If division Q accepts this offer, division P will be closed.

    If division Q accepts alpha Co’s offer, what will be the impact on profits per year for the group as a whole?

    November 30, 2015 at 7:38 am #286306
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51551
    • ☆☆☆☆☆

    The company overall is currently paying $240 per unit to produce the component.
    If instead, the component is purchased from Alpha it will cost $350 – and extra $110 per unit.
    So for 4,000 units it will cost them an extra $440,000 a year.

    However, since Q will be closed, then the company will save $24,000 a year.

    So the impact on profits of the overall company is that they will fall by 440,000 – 24,000 = $416,000.

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