PEV June 2008 Q2.2 a&b 3

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lilac_angel
lilac_angel Registered Posts: 66 Regular contributor ⭐
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

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  • val0123
    val0123 Registered Posts: 42 Regular contributor ⭐
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    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
    lilac_angel Registered Posts: 66 Regular contributor ⭐
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    Thanks for your help. i understand now
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