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Hello Sir,
I have the following question from the Kaplan book. Can you please help me to check it weather my answer is correct or not. Because there is no answer given in the book.
Jones Company is bidding for a contract which is due to be started within a few days. The contract will use up its stock of Material XY which will otherwise be held for one month. In one month’s time, there is a probability of 0.6 that it will be used. If it is not used then the material will be sold. Estimates are as follows:
$
Replacement cost of stock in one month’s time 15,000
Sales value in one month’s time 12,000
Stock holding cost for one month 900
The expected relevant cost of Material XY for use when evaluating the viability of the
contract is $_______My answer is as follows: 15000*0.6+12000*0.4+900=9000+4800+900+14700
Thank you very much Sir, beforehand.
Your answer is correct (except that the final ‘+’ sign should be an ‘=’ sign 🙂 )
I assume you mean the Kaplan Study Text. If you are watching my free lectures then you do not really need the Study Text – the lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
The book that you do need is the Exam Kit, because that is full of exam standard questions, and does have answers (and workings). There is little point in practicing questions for which you do not have answers.
Can you please look at the following question:
Material A – last year purchased in bulk at $7 per kg.
In stock there are still 11,000 kgs of Material A.
If this material is not used for the proposal under consideration it can be used in place of 5,000 kgs of a substitute material Z which is in regular use.
The current replacement cost of Material Z is $8 per kg. Find relevant cost of Material A for the proposal under consideration.Solution 5,000*$8=$40,000
Solution is clear but my question is: Is material Z also used for the same job(proposal) as material A is used for, or material Z and material A are used for different jobs?
Thank you Sir
Doing the proposal will only use material A.
If they don’t do the proposal than they will use the material A instead of needing to buy Material Z for whatever they are currently producing.
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