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Hi,
I don’t understand the following calculations with regard to point 4 in question 1 of June 2012 exam paper:
Point 4 is:
“Machine costs are semi-variable; the variable element relates to set up costs, which are based upon the number of batches made. The keypads’ machine has fixed costs of $4,000 per annum and the display screens’ machine has fixed costs of $6,000 per annum. Whilst both components are currently made in batches of 500, this would need to change, with immediate effect, to batches of 400.”Calculations are:
($26k – $4k) x 500/400 =27,500
($30k – $6k) x 500/400 =30,000Why they are not:
(26-4)x 400/500 = 17 600
(30-6) x 400/500 = 19 200 ?Machine costs are “current costs” and components are made “currently in batches of 500” so the total machine cost of 26 and 30 should relate to 500 batches, shouldn’t it?
Please help me understand what I don’t see here. Thank you!OK. I found a solution. I misread the question – 500 is number of components in a batch and not a number of batches itself. Now everything makes sense. Thank you anyway that you are there 🙂
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