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Mock exam question 2016 – probabilistic budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Mock exam question 2016 – probabilistic budgeting

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 21, 2021 at 11:17 pm #621375
    ythomas
    Participant
    • Topics: 16
    • Replies: 18
    • ☆

    Management have collected the following information:
    Demand Probability (units)
    Worst possible outcome 10,000 0·3
    Most likely outcome 22,000 0·5
    Best possible outcome 35,000 0·2
    The selling price per unit is $25. The variable cost per unit is $8 for any production level up to 25,000 units. If the
    production level is higher than 25,000 units, then the variable cost per unit will decrease by 10% and this reduction will apply to all the units produced at that level.
    Total fixed costs are estimated to be $75,000.
    Using probabilistic budgeting, what is the expected budgeted contribution of the product?

    A $282,000
    B $357,000
    C $287,600
    D $362,600

    My question is I don’t see where they have decreased the 10% in variable costs… when demand > 25,000 which in this case is 35,000 contribution is 17.80 they have added the 10% instead of subtracting…
    Thank you in advance…

    May 22, 2021 at 8:21 am #621395
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54832
    • ☆☆☆☆☆

    I do not know which exam you are referring to (whether it is in a Revision Kit or from the ACCA website).

    However, if the variable cost decreases by 10% it become $7.20 per unit. Therefore the contribution per unit becomes 25 – 7.20 = $17.80.

    May 24, 2021 at 7:15 pm #621663
    ythomas
    Participant
    • Topics: 16
    • Replies: 18
    • ☆

    Thank you for your help sir

    May 25, 2021 at 8:21 am #621693
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54832
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Mock exam question 2016 – probabilistic budgeting’ is closed to new replies.

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