Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Kaplan exam kit
- This topic has 1 reply, 2 voices, and was last updated 7 years ago by
John Moffat.
- AuthorPosts
- August 25, 2017 at 1:12 pm #403495
Appler is considering the relevant cash flows involved in a short – term decision . An important client has asked for the minimum price for the processing of a compound . The compound involves the followings:
Material A: Appler needs 500kg of material for the compound but has 200kg in stock present.The stock items were bought 3 months ago for 5kg but have suffered 10% shrinkage since that date . Material A is not regularly used in the business and would have to be disposed of at a cost to Appler of $400 in total . The current purchase price of material A is $6.25/kg
Material B : Appler needs 800kg of material B and has this in stock as it is regularly needed.The stock was bought 2 months ago for $4/kg although it can now be bought at $3.75/kg due to seasonal nature . Processinf energy costs would be $200 and supervisor says he would allocate $150 of his weekly salary to the job in the company’s job costing system.
BASE ON THE SCENARIO INFORMATION , what is the total cost of material A and B to be built into the minimum price calculation?
Solution :
Mat A :
Stock saved disposal costs = ($400)
Bought 300kg @ $6.25/kg = 1875
Net cost = $1,475
Mat B:
Replacement costs needed
800kg@ $3.75/kg = $3000
Total = $1,475 + $3000 = $4,475.My question : suppose we do not have 200kg but since the questions says we have it but needed to be disposed at a cost to us ($400) since its not regularly need . Can we complete the processing of the compound with just only 300kg when 500kg was required ? we had sold 200kg, now we have the cash . Why didn’t buy to replace it and make up the required 500kg for the processing ? We only bought 300kg and remove the costs of buying 200kg : meaning we needed just only 300kg for the actual processing and not 500kg.
Costs of material A and B should be (400) + $3,125(500kg@ 6$6.25)+ 800kg@ $3.75= $5725.
I wait your response maybe my idea of the scenario is totally wrong.
Thanks .August 25, 2017 at 3:45 pm #403509They are not selling the 200kg – they are using it for the compound.
The cost of using it is the opportunity cost of losing the revenue that we would otherwise have received from selling it.You must watch my free lectures on relevant costing because I go through examples like this.
- AuthorPosts
- The topic ‘Kaplan exam kit’ is closed to new replies.