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Relevant material cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Relevant material cost

  • This topic has 15 replies, 4 voices, and was last updated 10 years ago by John Moffat.
Viewing 16 posts - 1 through 16 (of 16 total)
  • Author
    Posts
  • October 26, 2014 at 8:41 pm #206145
    mansoor
    Participant
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    there are 100 liters of material A in stock. a new contract needs 50 liters. since the material is dangerous, the it will cost 50/liter to dispose off. the current price is $12.

    “if this material is not used in this contract, it will have to be disposed off at 50/liter”

    what is the relevant cost of the material for the contract?

    —-

    the text says a gain of 2500. i understand this part.

    what i dont understand is why arnt we taking into account 50×12=600?

    October 27, 2014 at 5:28 pm #206256
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    $12 is the cost of buying the material.

    We are not going to buy any – we are using what we have in inventory so it doesn’t actually cost us anything! However it does save us having to dispose of it (and you are happy with the 2500 saving).

    October 28, 2014 at 11:13 am #206378
    rrahmati
    Participant
    • Topics: 19
    • Replies: 28
    • ☆

    In some questions we have materials available in inventory, but it is less than the contract requirement, (eg, 500kg required, 400 in inventory), how should we value them ? and which value should be used (carrying value, realizable value or replacement ?).

    October 28, 2014 at 5:07 pm #206443
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    If there are not enough in inventory, then the extra will need to be purchased!!!

    The extra therefore have to be costed at the cost of buying them.

    (Have you watched the free lecture on this?)

    October 29, 2014 at 10:22 am #206547
    mansoor
    Participant
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    i cant find the lecture on it… can pls post a link?

    thanks

    October 29, 2014 at 10:33 am #206556
    rrahmati
    Participant
    • Topics: 19
    • Replies: 28
    • ☆

    In BBP kit Question 20.9

    Material Y: 500Kg is required and 400kg is inventory but the whole 500Kg is costed at purchase cost instead of costing 100Kg at purchase cost and 400kg of inventory separately.

    October 29, 2014 at 1:07 pm #206568
    mansoor
    Participant
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    i meant a link to lecture on this topic….i cant find the link…

    ——————-
    rahmati.. i know this question…..it threw me off too … thats why i need the link to john’s lecture on this

    October 29, 2014 at 4:38 pm #206606
    haymd1
    Member
    • Topics: 9
    • Replies: 26
    • ☆

    yeah rrahmati the solution is wrong in BPP kit of the question 20.9

    October 29, 2014 at 8:52 pm #206647
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    haymd1: The BPP solution is NOT wrong at all!

    Y is in regular use, and so the material taken from inventory needs to be replaced at the replacement cost.
    So all 500kg should be costed at $11 per kg.

    October 29, 2014 at 8:55 pm #206648
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    mansoor:

    You can find links to two lectures on the following page:

    https://opentuition.com/acca/f5/acca-f5-revision-notes-and-lectures/

    (you will need to download the free revision notes that go with them)

    October 30, 2014 at 8:03 am #206703
    mansoor
    Participant
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    thank u…

    20.9 in my bpp has 4 materials: w,x,y,z.

    for X, it says it is no longer in use. we need 500 kg and have 300 in inventory. it also says that there is no alternate use for X.

    the text values the entire 500kg on its realizable value of $3/kg. its replacement cost is $7/kg

    i valued 300@3/kg and 200@7.

    can u explain why my calculation is wrong?

    thanks

    October 30, 2014 at 8:57 am #206760
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Haydn was answering rrahmati who asked about material Y. For material Y, the BPP solution is correct.

    However they are wrong for material X. Since there is only 300kg in inventory, the extra 200kg will have to purchased and your workings are correct.

    October 30, 2014 at 10:23 am #206783
    mansoor
    Participant
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    whew…john… this is too depressing. these ppl charge an arm and a leg for texts and this is the second wrong question.

    for ppl doing self study this spells diasaster.

    thanks for clearing it up

    October 30, 2014 at 12:28 pm #206825
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    It is bad (and you will probably find more errors).
    At least they seem to have fewer errors than Kaplan do this time in their F5 Exam Kit!

    October 30, 2014 at 1:08 pm #206830
    mansoor
    Participant
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    i think u shd publish ur exam kits. am a 100% sure students will buy urs anyday!

    and yes.. kaplan’s typos are unforgivable. not sure who proof reads them…

    October 30, 2014 at 4:17 pm #206859
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Maybe you should email that to the ACCA – it is them who recommend them 🙂

    The ACCA do not allow us to use past exam questions, which is why we do not produce Exam/Revision Kits.

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