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relevent cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › relevent cost

  • This topic has 8 replies, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 9 posts - 1 through 9 (of 9 total)
  • Author
    Posts
  • February 21, 2022 at 4:02 am #649018
    Amrit123
    Participant
    • Topics: 26
    • Replies: 23
    • ☆

    9.A Co has three options for machine B. One of these options involves modifying the machine now at a cost of $7,200, which will mean that the company does not have to hire an alternative machine at a cost of $19,800. This modification would mean that machine B would have to be disposed of in one year’s time at a cost of $4,000. Ignoring the time value of money, calculate the relevant cost of this option.

    sir i reallly need your help in this question
    can we consider 19800 as a relevant cost here ?
    can we call it incremental cost or it is an incremental revenue…..

    February 21, 2022 at 9:34 am #649045
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    Without seeing the whole question would seem that the 19,800 is a saving rather than a cost.

    February 21, 2022 at 12:26 pm #649063
    Amrit123
    Participant
    • Topics: 26
    • Replies: 23
    • ☆

    It means here
    Relevant cost will be
    7200+4000=11200
    And
    Relevant cash inflow = 19800-11200= 8600
    Right ?
    Or what
    Need your help sir

    February 21, 2022 at 12:30 pm #649064
    Amrit123
    Participant
    • Topics: 26
    • Replies: 23
    • ☆

    Or there is no relevant cost
    Only cost saving of 8600?
    I’m perplexed

    February 21, 2022 at 7:07 pm #649082
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    It really depends on what the question asks for, and you have not typed out the whole question.

    The relevant cost of modifying machine B and using it is 7,200 + 4,000.

    This is cheaper than hiring a machine for 19,800.

    However it depends on how much machine B could be sold for now (or how much it would cost to dispose of it now instead of in 1 years time).

    Surely you have an answer in the same book in which you found the question? Also, full relevant costing questions are asked in Paper PM and not in Paper MA. Paper MA only asks the relevant costs for DCF investment appraisal.

    February 22, 2022 at 3:40 pm #649121
    Amrit123
    Participant
    • Topics: 26
    • Replies: 23
    • ☆

    One question sir
    To be a relevant cost
    There must be cash flow or
    Non cash flow items can also be a relevant cost ?

    And what we called to that amount which is saved just because we didn’t accept let’s say ABA project.

    February 22, 2022 at 6:54 pm #649134
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    Relevant costs are cash flows. If there is a cash saving then it is not given a separate name – it is a negative relevant cost.

    I do not know what you mean by ‘ABA project’ !!

    February 23, 2022 at 3:55 am #649155
    Amrit123
    Participant
    • Topics: 26
    • Replies: 23
    • ☆

    ABA is just a project assumed by me.
    So it’s just an assumption

    February 23, 2022 at 11:47 am #649195
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    OK

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Viewing 9 posts - 1 through 9 (of 9 total)
  • The topic ‘relevent cost’ is closed to new replies.

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