PCR - maintenance cost in flexible budget

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion


Usually the Chief Assessor makes notes about candidates who rote learn how to solve exam tasks, and those will find problems if the sort of question is different than what they learned.

In Section 2 of June 2006 Exam for PCR, they did not specify how much increase in the maintenance cost if the level of activity increase by 10000 units, and didn't specify if it incurred from the beginning of production or if the production reaches 10000 units.

Usually, as I did, it should be assumed that step cost should start from zero production, until it reaches 9999 units in our case, where it will increase by the same amount if it increases one more unit to be 10000 units.

From 0 to 9999 units, the cost of maintenance will be x. It increases by x if it is 10000 or any part of it, so it will become 2x until it reaches 19999 units.

20000 - 29999 Cost will be 3x

30000 - 39999 Cost will be 4x

40000 - 49999 Cost will be 5x

50000 - 59999 Cost will be 6x

Then, the amount of cost increase for every 10000 units will be 275000/6 = 45833.33

And when production is 72000 units, it falls in the range between 70000 and 79999 where x = 8

Therefore, the cost will be 45.33 * 8 = 366.63 (nearly 367) to be compared with the actual maintenance cost of 380 giving adverse variance of 13

This was from my point of view the new part to show understanding to the task data and requirements.

Good luck everyone

Nidhal


Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR - maintenance cost in flexible budget

    I follow you all the way up to 6 x 5,500 being 27,500 but then can't see what would make us stop applying the stepped cost at 5,500 for each 10,000 units of production and changing to 27,500/6,then multiplying that figure (45.33) by 8 and not the actual stepped cost (5,500) by eight.
    I can not recall any information given that would indicate this method to be applied. Was there an instruction I missed?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR - maintenance cost in flexible budget

    It came across to me as a very basic stepped cost calculation, the price increased by x amount for every 10000 or part, from what I remember

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