PEV - Reconciling F.O. incurred with the F.O. absorbed in production

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:26AM in AAT student discussion
If you're not sure what I'm on about, probably best referring to June 2006 Task 1.1 (c).

Where you calculate the budgeted costs for actual production (11,500 units x £37.50 = £431,250), I gather the £37.50 is the total standard cost (£10.00 + £3.50 + £24.00).

When trying to do this for Tast 1 on December 2005 (just for revision purposes, they don't actually ask you to prepare one) the figure used to multiply the actual output works out as 0.44 (£440.00/1,000 units). Doing this puts my whole reconciliation out by £60,000. If it was 600,000 units x 0.34 however, it would reconcile?

Anyone care to explain why, as I can't work out how they got to this figure. I ask because I'll hopefully use this (if we don't get asked to do it) as a method of checking my answers from the first section.

Thanks in advance.

Bryan

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV - Reconciling F.O. incurred with the F.O. absorbed in production

    Hi there Bryan,

    If you look at June 2006 paper more closely you will see that 37.50 is the total standard cost of what is given to you already in the question paper.

    What you say on the next answer for it to reconcile is correct.

    You must remember as long as it reconciles it is correct and do not try to look for more answers that are not there. that is the mistake I have made many times.

    All the best with the exam next week if you are sitting it, hence I am sitting it again so social life out the window and revise and revise and revise.

    all the best
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV - Reconciling F.O. incurred with the F.O. absorbed in production

    Just realised for your question on Dec 2005 paper have you had a good read of the answers, maybe that will help you. Keep going over it and then I am sure it will come to you.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PEV - Reconciling F.O. incurred with the F.O. absorbed in production

    Bryan
    Dec 05 was based on newspaper production.
    The standard cost of 600,000 newspapers at £0.44 per newspaper is £264,000.

    Are you trying to apply variances to reconcile this to actual cost?

    Look at what your standard cost is based on:
    paper
    ink
    direct labour
    fixed production overhead

    Now look at the actual costs you have:
    ink
    direct labour
    fixed production overhead

    You are not given the actual cost of the paper until task 1.2, so you are probably trying to reconcile without the 2 being the same.

    If instead you try to reconcile the actual cost of just
    ink
    direct labour
    fixed production overhead

    with the standard cost of
    ink
    direct labour
    fixed production overhead
    for 600,000 newspapers I think you will find your sums work. Afterall, £100 of newspaper cost for 1,000 newspapers is £0.10 per newspaper.

    It's fine for sums, but the value to the business would be be in carrying it out for the paper as well.

    sandy.hood@chichester.ac.uk

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