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Hello John,
I have a few questions about multiple choice, a few of them are driving me mad. I hope you can help me.
Question 19.5 I dont have idea how to resolve this exercise. I read the solution a few times but I dont understand.
Question 20.9. How can I know if I should multiply the quantity of kilos by ” realisable value” or ” replacement value”?
Because material Y its usually used by the company. Why is it multplied by replacement value if its not gonna be replaced.
For material X says its not longer in regular use which for me means that they are not going to buy this product again. BUt its multiplied 500gr * 3 when they only have 300kg on the inventory (but they need 500kg)Please help me 🙂
Thanks
Esther19.5
If you have watched my lecture on shadow prices then you will know that the shadow price is the most extra you would be prepared to pay for one extra unit of the limited resource.
For Material X, we currently pay $10 per kg. The shadow price is $6 per kg. So it is only worth buying more if the extra costs less than $16 per kg.
Because the shadow price of labour is $0, it is not worth paying any extra above the current price per hour.20.9
Again, you must watch my lectures! This is a very very standard question.
Material Y is in regular use and so if we take any for the project then it has to be replaced otherwise whatever we are currently using it for will suffer.
For material X, however, the BPP answer is wrong. 300kg from inventory is valued at $3 per kg. The other 200 kg not in inventory will have to be purchased and they should be therefore valued at the replacement cost of $5 per kg.Thanks John,
I have watched them again and now everything is clear.
Thanks for your hellp
Esther
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