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Relevant cost in F9

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Relevant cost in F9

  • This topic has 5 replies, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • December 31, 2016 at 2:38 am #364689
    vuvietquang90
    Member
    • Topics: 36
    • Replies: 88
    • ☆☆

    Dear tutor!!!

    Can u explain for me this question in bpp kit.

    ” LW has a half empty factory on which it pays $5,000 pa rent. If it takes on a new project, it will have to move to a new bigger factory costing $17,000 pa and it could rent the old factory out for $3,000 pa until the end of the current lease. What is the rental cost to be included in the project appraisal?”

    What i am thinking is like this:

    $5,000 is that we could save if move to a bigger factory
    $17,000 is a new rental as cash outflow
    $3,000 is cash inflow

    The answer is :
    17,000+5,000-3,000-5,000= 14,000

    Why should we take into account 5,000?
    It’s just 17,000-3,000 = 14,000

    Can u explain for me why add +5,000 and -5,000 in the bpp’s answer?

    December 31, 2016 at 9:11 am #364707
    vuvietquang90
    Member
    • Topics: 36
    • Replies: 88
    • ☆☆

    Can u answer me pleAseeeeeeee

    December 31, 2016 at 3:16 pm #364720
    vuvietquang90
    Member
    • Topics: 36
    • Replies: 88
    • ☆☆

    Answer me please sir!!!!

    December 31, 2016 at 5:38 pm #364728
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    Sorry – it is New Year and I am away from home until tomorrow.

    I will answer you tomorrow evening if you remind me.

    January 1, 2017 at 3:45 am #364738
    vuvietquang90
    Member
    • Topics: 36
    • Replies: 88
    • ☆☆

    Yes and happy new year
    Can u answer me now?

    January 1, 2017 at 4:35 pm #364774
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    But it is not relevant and so there is no need to add 5,000 and then subtract 5,000 🙂

    I would not do that and there is absolutely no need to do that in the exam. You will still get full marks for ending up with the 14,000!

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