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Sir, I’m facing some difficulty for this question :-
QUESTION 7 : GHK manufacturing four products from different combinations of the same direct materials and direct labour…
(the question and answers can be found at this link :https://www.cimaglobal.com/documents/importeddocuments/may06p2book.pdf)
From the model answer, How do I get the respected cost per unit of direct material for each of the products mentioned? Yes, I know $7per kg is the replacement cost as $5 is the sunk cost. But how can I can get G ($4.20), H ($5.60), J ($2.10), K ($8.40)??
It’s difficult to type the whole question out as there are too many information in a table.
I will answer this question, but please do not post CIMA questions again in this forum – it is for ACCA questions.
I will show you the workings for G (the others are done in the same way).
Currently material A is charged at $3 per unit ($9,000/3,000).
Since the budget is based on original cost of $5 per kg, it means that they must be budgeted on using 3/5 = 0.6 kg.
It should be charged at $7 per kg, which means 0.6 x $7 = $4.20 per unit.Sorry, my bad. I didn’t intend of posting it but it was difficult to type the entire question down.
Here, you used ‘budget price per unit over original cost’ formulae to get the budgeted unit?
And Sir, the overhead on note 4. I divided $6k with 3k units resulting to $2 per unit but the answer showed $1 per unit. I don’t get it 🙁
Second post:
You have not read note 4 🙂
So for G, removing the $1,000 would mean they were left with 5,000 for 3,000 units and 7,000 for 5,000 units.
Thank you need to use the high low method which gives a variable cost per unit of (7,000 – 5,000) / (5,000 – 3,000) = $1 per unit.
The rest of it is high-low, and if you are not clear about the high-low method you should watch the relevant F2 lectures (it is at the end of the chapter on cost classification and behaviour).
Ooohh! How come only overheads we are to use the high low method and the rest are different?
I’ve watched the F2 lectures but I didn’t know we are to use the high-low method for this kind of question >.<
But I did the workings for you two replies ago 🙂
You take the difference between the two total costs (after having removed the $1000) and divide by the difference between the two quantities. This gives the variable cost per unit.
That explains it. Sir, for the relevant selling price per unit.. which column should i see for each product? Is it the one with 3k units or 5k units? Coz no matter which one I choose to calculate out the sp/unit, it gives the same figure.
In part b) as per the answer : 1,983 units are unsatisfied from the non contract demand of 4,000 units and it requires more of Material B than is released. I’m stuck at why product K should be manufactured at 1,050 units.
It doesn’t matter which column you take – you would expect the selling price per unit to be the same!!
There is 1260 kg of material B released.
Each unit of K takes 1.20 kg
Therefore they can produce 1260 / 1.20 = 1,050 units
(This really is not so good a question to practice for Paper F5).
Yea, I thought so but I had no choice coz I was given this kind of question by my own lecturer although I’m taking ACCA, not CIMA 🙁
I can’t imagine why he has given you this question.
It is better to practice using real past ACCA questions 🙂Hi John,
On Relevant costing lecture example 2 bank loan interest were relevant but we had a similar scenario on Specimen exam F2 June 2014 section B question 1 (viii) that the interest was irrelevant, can you please help us understand this.
Thank you for great lectures.
Kind Regards.
The F2 question was asking relevant cash flows for a net present value calculations.
Interest is never relevant there because it is accounted for in the discounting.
Relevant cash flows in Paper F5 have nothing to do with net present values.Net present value calculations are not in the syllabus for paper F5 and are not relevant until Paper F9.
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