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Stow health centre

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Stow health centre

  • This topic has 4 replies, 2 voices, and was last updated 4 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • July 25, 2020 at 6:43 pm #578049
    kennigara
    Participant
    • Topics: 193
    • Replies: 250
    • ☆☆☆

    The maximum capacity of a health centre is 50 clients per day for 350 days in the year.

    Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with the client fee level per day and is estimated at different percentages of maximum capacity as follows.

    Client fee per day Occupancy level Occupancy as a percentage of max. capacity
    $180 High 90%
    $200 Most likely 75%
    $220 Low 60%

    Variable costs are estimated at one of the three levels per client day. The high, most likely and low levels per client are $95, $85 and $70 respectively.

    The range of cost levels reflect only the possible effect of the purchase prices of goods and services.

    No of client days:
    Maximum capacity = 50*350 = 17500

    High occupancy level = 90% of 17500 = 15750
    Most likely level = 75% of 17500 = 13125
    Low level = 60% of 17500 = 10500

    ———————————————————–Variable cost
    —————————————————–95—————————–85——————70
    Client fee

    180-(15750*180)-(15750*95)=1338750,(15750*180)-(15750*85)=1496250

    200-(13125*200)-(13125*95)=1378125,(13125*200)-(13125*85)=1509375

    220-(10500*220)-(10500*95)=1312500,(10500*220)-(10500*85)=1417500

    why sales units stay unchanged everytime by multiplying with variable cost?Variable cost decrease but units become stable.why?

    July 26, 2020 at 9:27 am #578086
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54670
    • ☆☆☆☆☆

    The question says that the occupancy level changes with the fee pay day. It is not affected by the variable cost.

    So if the fee is $180, then the occupancy level will be 15,750 regardless of what the variable cost per day is.

    Why should the cost per day affect how many people use the health centre? All that affects the demand is the price charged per day.

    July 26, 2020 at 9:10 pm #578137
    kennigara
    Participant
    • Topics: 193
    • Replies: 250
    • ☆☆☆

    Dear Tutor, I thought that in any case if demand goes down then variable coast will also decrease such as if you remember in prior example(shifter haulage).I also need to pay attention and carefully read the instruction.It is not the case always.
    But in reality it should have decreased.

    In practice ,fixed cost is not always stable as the volume of output considerably increaaw or decrease fixed will will be step-cost.In theory,it is always stable.

    Variable cost per unit remain the same in the theory but in real life,as economies of scale increase(learning rate decrease) employees get experienced and the cost goes down.In the case of diseconomies of scale(learning rate is almost between 90% and 99%) the variabel cost goes up.
    Most importantly it is relevant within the relevant range of volume.

    Theory and real life are conflicting to one another.

    July 26, 2020 at 9:11 pm #578138
    kennigara
    Participant
    • Topics: 193
    • Replies: 250
    • ☆☆☆

    Sorry for some mistakes in letters:(

    July 27, 2020 at 10:13 am #578162
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54670
    • ☆☆☆☆☆

    This is a health centre and it is less likely that the variable cost per client day will change with the number of client days. Even if it might happen in real life, you cannot assume that if the question does not say so.

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  • The topic ‘Stow health centre’ is closed to new replies.

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