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F5 Revision Mock Exam

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › F5 Revision Mock Exam

  • This topic has 5 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • December 3, 2015 at 2:32 am #287110
    Erica
    Member
    • Topics: 16
    • Replies: 33
    • ☆

    Sir,

    the other day you did quite mention that there’s been a change to the lecture notes of F5 on activity based costing and the answer is both statements are true but in the revision mock exam which I did couple of minutes ago, only statement 2 is correct.

    This question:

    Which of the following statements about Activity Based Costing is/are true?

    1. Traditional absorption costing tends to under allocate overhead costs to low products.
    2. A cost driver is any factor that causes a change in the cost of an activity.

    Now I’m very confused.

    December 3, 2015 at 2:44 am #287111
    Erica
    Member
    • Topics: 16
    • Replies: 33
    • ☆

    Second question :

    A contract requires 100 hours of skilled labour.
    Labour is paid $5 per hour.
    Labour is currently fully occupied making another which is generating a contribution of $8 per unit.
    Each unit of the other product requires 2 hours of skilled labour.

    What is the relevant cost for labour? (Answer is 900 but how?)

    December 3, 2015 at 7:57 am #287147
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51560
    • ☆☆☆☆☆

    First question:

    If I did say that, then either I got confused or you misunderstood me.

    Let me explain with a small example!

    Suppose we produce 100 units of A and 1000 units of B
    Suppose the total set-up costs are $2,200.
    Then using traditional absorption they will be absorbed at $2,200/1,100 = $2 per unit.
    So the total overhead charged for product A is 100 x $2 = $200

    Suppose that we use ABC and that each product needs 1 set-up (regardless of how many units are produced). That means it is $2,200 /2 = $1,100 per set-up.
    So since product A needs set-up then the total overhead for product A is $1,100

    Absorption costing will have under-allocated the overhead cost. (It is not automatically the case, but it does tend to under-allocate)

    December 3, 2015 at 8:00 am #287148
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51560
    • ☆☆☆☆☆

    Seceding question:

    When labour is fully occupied elsewhere, then the relevant cost is: labour cost per hour + lost contribution per hour. (The logic of this is explained in the free lecture on relevant costing).

    In this question, about is paid $5 per hour.
    The other product takes 2 hours per unit and gives a contribution of $8 per unit. So the contribution that will be lost by not making it is $8 / 2 = $4 per hour.

    So the relevant cost of labour is $5 + $4 = $9 per hour.

    100 hours are required so the total cost is 100 x $9 = $900

    December 3, 2015 at 8:06 am #287152
    Erica
    Member
    • Topics: 16
    • Replies: 33
    • ☆

    First question : So is statement 1 correct?

    December 3, 2015 at 8:55 am #287176
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51560
    • ☆☆☆☆☆

    Yes – both statements are correct.

    (I do apologise – what has happened is that the answer in the exam has been corrected, but not yet uploaded. It is my fault and is because I am busy providing pop-up answers to all the questions before re-uploading it, and given there are several 100 questions in the bank it is taking a bit of time 🙁 )

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