Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › target net flow
- This topic has 5 replies, 3 voices, and was last updated 5 years ago by John Moffat.
- AuthorPosts
- January 21, 2016 at 7:23 am #296808
Sir,
how to calculate variable overhead?
total cost is 315423 after applying learning curve i got it, after this how to calculate variable overhead?BFG Limited is investigating the financial viability of a new product the S-pro. The S-pro is a short-life product for
which a market has been identified at an agreed design specification. The product will only have a life of 12 months.
The following estimated information is available in respect of S-pro:
1 Sales should be 1,200 units in the year. An average selling price of $1,050 per unit is expected. All sales are
for cash.
2 An 80% learning curve will apply for the first 700 units after which a steady state production time will apply,
with the labour time per unit after the first 700 units being equal to the time for the 700th unit. The cost of the
first unit was measured at $2,500. This was for 500 hours at $5 per hour.
3 Variable overhead is estimated at $2 per labour hour.
4 Direct material costs will be $514,000 for the year. All purchases are made for cash.
A target net cash flow of $350,000 is required in order for this project to be acceptable.
Note: The learning curve formula is given on the formulae sheet. At the learning rate of 0.8 (80%), the learning
factor (b) is equal to –0.3219.
Required
(a) Prepare detailed calculations to show whether product S-pro will provide the target net cash flow.thanks in advance
January 21, 2016 at 8:13 am #296836Since labour is paid at $5 per hour, then the total number of hours is $315,423 / $5 = 63,084.6 hours. (You write that you are OK getting the 315,423)
Variable overheads are costing $2 per labour hour. So the total variable overheads = 63,084.6 x $2 = $126,169.
January 21, 2016 at 9:43 am #296874thank you Sir
January 21, 2016 at 10:37 am #296884You are welcome 🙂
April 13, 2019 at 8:34 pm #512290can I get some help in working this question
April 14, 2019 at 10:03 am #512348You will have to say which bit you are not happy with?
I assume that you have watched the free lectures on learning curves?
- AuthorPosts
- You must be logged in to reply to this topic.