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management in decision and control

MannaesiMannaesi Registered Posts: 55
in Management Accounting: Decisions and Control
hello,just realised that on that part b of that question that they ignored the discount on material,can anyone tell me why?

Comments

  • HelperHelper Registered Posts: 3
    Hi,
    Possibly the wording here is poorly written- "ALL ITEMS OF OUTPUT above 10,000 units."
    Once the 10,000 output level has been breached the business will purchase all of its material with a 5% discount.
    Don't think the 12,000 items will be a one off, and ignore any FIFO considerations.
    £330,000 / 8,000 units = pre-discount cost per unit of £41.25. Multiply that by 12,000 units = £495,000.
    Then deduct the 5% discount (£24,750), to give the quoted £470,250.
    Don't just apply the 5% discount to the 2,000 units in excess of the threshold- which the wording might suggest as written.
    Would have been better written as 'Once Output exceeds 10,000 units, then a 5% discount is applied to material cost, on all of the units produced.'
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