Hi John sir..Hope you will best at health. Plz help me with the following.
ABC produces a product according to requirements of customers. It has receieved an order for supply of 100 batches. Each batch consists of 100 units. Cost for the first batch is as follow:
D.material 1100 kg $66,000
(Inclusive of 10% input losses)
Additional information:
It is estimated that after completion of first 16 batches, material input losses would be reduced from 10% to 6%.
Req:Calculate the T.material cost on 100 batches.
Solution is given as follow:
First 16 batches (16×66000) =$1056,000
Next 84 batches 84×(66000/1.1×1.06)
=$53,42,400
Sir;
Cost of first 16 batches makes sens to me but cost of next 84 batches does't make any sense to me. Plz explain me in you own way. Let it..input should be 100 percent as we have learnt from out previous studies..but here he is taking it 110 percent i guess..plz guide me.
Thanx
Ask the Tutor ACCA PM
Normal losses.
9y ago#1If you have typed the question and answer correctly, then the answer is wrong.
Since the material needed for the first batch of 1100 kg is inclusive of input losses of 10%, then the material actually needed for production is 90% x 1100 = 990 kg.
For the other 84 batches, the loss is 6% of input, so for every 100 kg input only 94 kg would be available for production. Putting it the other way round, for every 94kg needed for production it would require 100 kg of input.
So for 990 kg of production it would require 100/94 x 990 kg = 1053.19 kg of input.
So the correct total cost = 84 x 1053.29 x $60 per kg = 5,308,582
If this was a past exam question or is in the current edition of the BPP Revision Kit, then please tell me which question so I can check for myself :-)
Thank you so much my dear sir..Question is typed correctly. I got it..thanx again..
9y ago#3You are very welcome :-)
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