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Hi,
Question 5 (Stay clean) – December 2009
2 approaches are provided by the examiner. I’m confused, I end up mixing the approaches for example, writing the lost discount of $19000 (note 9) in approach 1 rather than in approach 2.
What is the difference (conceptually) between those 2 approaches ?
There is not really any conceptual difference – in both approaches we are calculating the cash saving or (in this case) extra cost of stopping producing TD now.
The first approach looking at the change in the revenue and the costs individually, taking into account the lost discount when calculating the change in the supplier payments.
The second approach is looking instead at the change in the contributions ignoring the lost discount and then bringing in the lost discount separately.Either approach was acceptable for the marks. (This was a hard question – it was set by the previous examiners 🙂 )
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