PCR Help

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:26AM in AAT student discussion
Hi folks!

Can anyone shed some light for me? When we use cost of production instead of cost of sales to establish profit, do we then deduct the value of closing stock or is that the other way round?? Im getting quite confused!!!! :shock:

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help

    Hi hun, will try and help you but it may be a case of the blind leading the blind here :lol:
    when using the cost of production you have:
    Sales
    add open stock
    less closing stock
    = production
    then if there are any faulty units you need to recalculate here to establish "gross production"
    does this help? if not, do you have a specific question we could see?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help

    Thanks for replying! An example of what is confusing me is on the June 2005 exam Task 1.1 (i)?? I need to understand the logic behind the numbers!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help

    Hi hun, sorry for not replying earlier, have been cleaning! such an exciting life I lead!!!
    June 2005 1.1(i) it asks for a "budgeted op statement" so you need to calculate the selling price for the budgeted no of units then deduct your cost of production (as previously calculated in (g) )
    and opening stock (in data) then using the data calculated in (h) you can work out the value of your closing stock giving you your cost of sales. This is basically an operating statement just using budgeted figures instead of actual. I'm sure you will be OK, you are prob like me and a bit brain numb from all the studying :roll:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help

    Gosh my reply even confused me!
    I try to think that for each period I am budgeting, I have a selling price for that period, then I need to work out my cost of sales. Here I look at is as the opening stock is a charge for this period therfore it's added to my total cost of production, the closing stock is a charge for the next period, so I deduct it. This gives me a total figure of what my goods have cost me for THIS period. When I deduct this from my selling figure I have the profit I expect to make for this period. Should I stop helping(?) now. :lol:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help
    chelledunleavy wrote:
    Hi hun, will try and help you but it may be a case of the blind leading the blind here :lol:
    when using the cost of production you have:
    Sales
    add open stock
    less closing stock
    = production
    Wrong way round!
    less opening stock
    add closing stock
  • System
    System Posts: 100,534 🤖 Admin 🤖
    PCR Help
    kerrarno wrote:
    Hi folks!

    Can anyone shed some light for me? When we use cost of production instead of cost of sales to establish profit, do we then deduct the value of closing stock or is that the other way round?? Im getting quite confused!!!! :shock:

    I think I know what you mean.
    You have your turnover, less variable cost of production, less your closing stock (if any), less your contribution to get your variable cost of sales. Then take away the fixed costs to get your operating profit.
    Does that help?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help

    Thank so much purple girl. I was getting myself tied up in knots over my answer, wish I hadn't posted it now, feel rather stupid and guilty for confusing Kerrarno in the process :cry:
    Oh well, I think that just proves a little more revision is needed!
    Could you explain the process logically for us both though, it may help us to understand the process a little better.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help

    Thanks both for taking time out of revision for replying! After looking at my notes i think it is turnover add opening stock, add cost of production, less closing stock (as this relates to next period) = profit. I thought you deducted opening stock and added closing stock when calculating production budgets although there is a good chance here that ive got it all wrong! :shock:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help
    chelledunleavy wrote:
    Could you explain the process logically for us both though, it may help us to understand the process a little better.

    OK, this is from memory. I think the was I explained it turned everything upside-down and seeing it laid out is easier! Everything in brackets is taken away.

    Turnover
    Variable cost of production
    Materials
    Labour
    variable cost of electricity eg
    Total var COP
    (closing stock)
    Total var cost of sales
    (contribution)
    Fixed costs
    fixed cost of electricity
    Depreciation
    Rates
    (Total fixed costs)
    Operating profit

    So, with me making up figures, it'll look like this:

    £000
    1560
    50
    60
    15
    1435
    (100)
    (1335)
    225
    30
    15
    10
    (55)
    170
  • System
    System Posts: 100,534 🤖 Admin 🤖
    PCR Help
    purplegirl wrote:
    kerrarno wrote:
    Hi folks!

    Can anyone shed some light for me? When we use cost of production instead of cost of sales to establish profit, do we then deduct the value of closing stock or is that the other way round?? Im getting quite confused!!!! :shock:

    I think I know what you mean.
    You have your turnover, less variable cost of production, less your closing stock (if any), less your contribution to get your variable cost of sales. Then take away the fixed costs to get your operating profit.
    Does that help?

    I can see where it was confusing now! You have to add up the variable COP and minus the closing stock to get the variable COS, which you minus from turnover to get contribution. You then take the total fixed costs from the contribution figure to get your operating profit.
    Hopefully the above example should help!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help

    Hi you threee, I am revising for pcr, and you have all confused me!!!!!!thanks
    I have always been taught
    Sales
    Less opening stock
    Add closing stock
    = Gross Production

    or

    Sales
    Less opening stock
    add closing stock
    = good production
    +faulty Production
    = gross production

    That is if the question says that there are faulty goods, i.e 4% then it would be

    Good production 96%
    Faulty 4%
    Gross production 100%

    Please tell me that this is right or I am in big trouble.
    Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Help

    biglill

    Your thread is correct.

    The other postings were addressing another point. On marginal costing statements you have to find the variable cost of sales. If the firm has produced more than it sold, then you first find the variable cost of production, take off the variable cost of the unsold stock and you are left with the variable cost of sales.
    Just as purplegirl has explained.

    For anyone else reading this Biglil is essentially describing the method of finding the budgeted production a typical section 1.1 task whereas the other postings were looking at budgetary control operating statements typically section 2 tasks

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