PEV June 2008 Q2.2 a&b 3
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 A1A2 and B1B2.
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
can anyone help me with this question. i don't understand how Voltairs avoidable production costs equal Answer A1A2 and B1B2.
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
0
Comments

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.0 
Thanks for your help. i understand now0
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