Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Pay off table
- This topic has 3 replies, 2 voices, and was last updated 9 years ago by
John Moffat.
- AuthorPosts
- May 25, 2016 at 12:17 pm #317036
Dear Tutor,
Could you please help me with the following question:
Cement Co is a company specialising in the manufacture of cement, a product used in the building industry.
The company has found that when weather conditions are good, the demand for cement increases since more building work is able to take place. Cement Co is now trying to work out the level of cement productionfor the coming year in order to maximise profits. The company has received the following estimates about the probable weather conditions and corresponding demand levels for the coming year:Weather Probability Demand
Good 25% 350,000 bags
Average 45% 280,000 bags
Poor 30% 200,000 bagsEach bag of cement sells for $9 and costs $4 to make. If cement is unsold at the end of the year, it has to be disposed of at a cost of $0.50 per bag. Cement Co has decided to produce at one of the three levels of
production to match forecast demand. It now has to decide which level of cement production to select.My calculation for the situation: Demand is 280.000 and production 350.000 bags is as follows:
(280.000 x 9) – (350.000 x 4) + (70.000 x 0.5)= 1.155.000But in the answer the amount (70.000 x 0,5) is deducted.
My understanding is that if more bags are produced than sold in this situation the company will sell them at 0.50 per bag and generate additional revenue, in the example above 35.000.
Could you please clarify for me why the amount is deducted.
May 25, 2016 at 2:59 pm #317057But they do not sell them for $0.50 per bag. They have to pay $0.50 a bag to be able to dispose of them.
(There is no need to type out past exam questions in full – just give the name and say which exam and I can find it 🙂 )
May 25, 2016 at 3:06 pm #317062Thank you very much. I misunderstood the question.
I didn’t know that this was a past exam question. I’ve found it in the BPP kit as Mock exam question.May 25, 2016 at 3:23 pm #317074You are welcome 🙂
- AuthorPosts
- You must be logged in to reply to this topic.