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In Kaplan Exam kit for Question # 282 Budgeting. They have given Other Cost $20. In the problem they have given the assumption “The Other Costs are 40% fixed”.
In calculation they have calculated the it by the following method:
$20 x 60% x 40% = $5
Kindly explain the problem and method.
Sorry but I only have the BPP Revision Kit – not the Kaplan exam kit. Without being able to see the question I am afraid that I can’t help you.
Sand wish Queen is looking to expand its restaurant facilities to increase its seating capacity a further 40%. Results for the current year are:
Food Sales $ 200
Drink Sales $ 170
$370Food Costs $145
Drink Costs $77
Staff Costs $40
Other Costs $20
$282Net Flow $88
Sales & Variable Costs will increase in line with seating capacity increase. The Other Costs are 40% fixed. An Extra employee is required to serve the extra seating capacity. There are currently 4 employees on an equal wage.
What is the relevant annual net cash flow to the nearest $000 of the proposed expansion.
Please don’t simply set test questions in this forum and expect an answer.
You must have an answer in the same book in which you found the question (if not then you are wasting your time – you should be using a Revision Kit from one of the ACCA approved publishers because they do have answers and explanations to all the questions).
Ask which part of the answer you are not clear about and then I will try and help you.
This question effectively wants you to flex the budget and this is dealt with in my free lectures. The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
Mr. Moffat,
I understood the entire calculation of the given problem. We have to increase the Sales and Variable cost by 40%. I am facing trouble with Other Costs. In the question they have said, ” The Other Costs are 40% fixed”. In the Exam Kit they have calculated it as follow:
$20 x 60% x 40% = $5
I want to know that if we have just increased sales and Variable by just adding 40%. Why with the other cost we have multiplied $20 first with 60% and then by 40% to get our answer $5.
Hope you may solve my problem now. I have written entire question for your ease not for the detailed solution. However, next time I will be careful in defining the problem.
Thank you
Hi Sir good morning,
I am having the same exact difficulty here. Please explain what the calculation below related the “other costs” is expressing.
The Other Costs are 40% fixed
$20 x 60% x 40% = $5Would really appreciate if you can look into this and provide your explanation. I have been trying to understand how it comes out to $5 and the reasoning behind this calculation.
Thanks,
SaraThe ‘other costs’ are 40% fixed and therefore the other 60% must be variable.
So the variable part is $20 x 60%, and therefore with 40% extra seating the extra cost will be $20 x 60% x 40% = 4.80. This has been rounded up to $5, presumably because the answer is required to the nearest thousand (but given that I do not have the Kaplan Kit I do not know whether the figures that akhalid typed were in thousands).
Thank you very much – your first sentence was the missing piece for me to understand!
Good day!
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