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Short Term Decision

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Short Term Decision

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 24, 2015 at 9:11 pm #278762
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Mr Moffat,

    I did below question but it still not completely clear to me the answer provided. Could you kindly help?

    A company produces three components on the same machine. The components are used in the manufacture of a finished product. The budget for next year indicates a requirement for 3000 units of each component, but only 60000 of machine time will be available. Additional components and be purchased from an external supplier to meet any production shortfall.

    Component Machine hour per unit VC per Unt Purchase Price Per unit
    A 9 45 65
    B 5 70 78
    C 12 56 80

    What is the minimum total variable cost at which the 3000 units of all three components can be obtained?

    Answer Machine hours Variable Cost

    Make A 3000 units 27000 135000
    Make C (balance 2750) 33000 154000

    Buy 250 C at 80 20000
    Buy 3000 B at 78 234000

    Total 534000

    Why has the cost of buying material been included in the calculation of the variable cost?
    When I did the question I only considered 135000+154000.

    Thanks

    Gabbi

    October 24, 2015 at 10:35 pm #278773
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    But materials are a variable cost. If they do not buy the materials then they cannot produce the units 🙂

    October 25, 2015 at 2:13 pm #278860
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    That’s true.
    Thanks a lot.
    Gabbi

    October 25, 2015 at 6:28 pm #278905
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
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