Question 1

Section A

CraftWorks manufactures custom furniture. It is currently facing a shortage of skilled labor. It can either make a specific table leg in-house or buy it from an external supplier. 
Variable cost to make: $15
External purchase price: $22
Skilled labor hours required to make: 0.5 hours

What is the extra cost of buying externally per limiting factor (skilled labor hour)?

Accepted Answer

1. Find the extra cost to buy one unit (Purchase price - Variable cost to make). 2. Divide this extra cost by the amount of the limiting factor saved by buying it.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Stopping at the extra cost per unit ($7) and not converting it to the cost per limiting factor.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 3

More questions from this exam