Relevant/Shut down Dec 09, STAY CLEAN

The current net cost is 1010000.
If they cease TD then that cost is removed and is 1200 x 50 = 60,000.
Also the lose 5% of the other products which will save materials of 5% x ((5,000 x 70) + 6,000 x 100)) = 47,500.
This gives a new cost of 1010000 – 60000 – 47500 = 902,500.

However all the costs used will be after a discount of 5% (because the current figures had a total of more than 960,001.
That means the full price of the new cost of materials would be 902,500 x 100/95 = 950,000.
They will get a discount on this, but only a 3% discount, and therefore the actual new total cost will be 97% x 950,000 = 921,500.

So the difference between the current total net cost (1,010,000) and the new net cost (921,500) is $88,500.

Great – I am glad it helped 🙂

(note 5 ) Is there a simple method to it ? its kind of confusing

thank you !
1 more question :
what is the the difference in the working of NOTE 5 and Note 9
i know it may sound dumb but the solution is written in a really confusing way

You don’t need to do it two ways – the examiners answer is simply showing two different ways of arriving at the same answer. Either way would have got full marks.

This question was set by the previous examiner and is a particularly hard question. That is why most Revision Kits by ACCA approved publishers no longer have this question in them.

However if you look at the marking scheme you will see that the bit about discounts did not get that many marks – there are plenty of other reasonably easy marks to get. (For Section C questions the marks are for each bit of the workings, not for the final answer.)

Apart from watching my free lecture (which I assume that you have already done) then I am afraid it is just a question of practice.