PEV June 2008 Q2.2 a&b 3

lilac_angel

Hi All,
can anyone help me with this question. i don't understand how Voltairs avoidable production costs equal Answer A1-A2 and B1-B2.
I would have thought the avoidable costs were the 1.95 million from the notes divided by 10,000.
Would be very greatful if anyone could help me.
Thanks

val0123

I think the workings are as below?

The answer to a (i) is all production costs per turbine as follows:

Materials £3,000,000 (detailed in the question as a cost to be saved, so avoidable)
Labour £2,000,000 (as above)
O/heads £3,000,000 (detailed in the question as £1,050,000 unavoidable, £1,950,000 avoidable)

Total = £8,000,000/ 10,000 = total production cost of £800 per turbine

So it follows that when the unavoidable fixed production cost per turbine is calculated at (£1,050,000/ 10,000) = £105 per turbine at question (ii) the remaining costs are all avoidable, so £800 - £105 = answer to question (iii) £695 avoidable production cost per turbine.

lilac_angel

Thanks for your help. i understand now