Pev

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Liliana
Liliana Registered Posts: 39 Regular contributor ⭐
I am really struggling with PEV... not sure what i am doing, where i am going... is anyone feeling the same? It seems that whatever i have learned in class is not applicable in the exams... I honestly can't remember doing such exercices in class... what i do remember was doing the theory for this unit!!!
I am going to be really honest... i really don't understand any of this unit... the formulas don't make sense when applied to the actual questions in the past papers...
Can anyone help on a way to understand this subject?? I would really appreciate it...

Thanks in advance

Lily

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  • gingervicki
    gingervicki Registered Posts: 87 Regular contributor ⭐
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    i feel the same way, just look at it and im blank, i feel my head is full of stuff and im wading through it and not getting anything out

    vicki
  • cs_1988
    cs_1988 Registered Posts: 231 Dedicated contributor 🦉
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    Hi Liliana,

    Which section are you struglling on? 1 0r 2

    Chris
  • Londina
    Londina Registered Posts: 814 Epic contributor 🐘
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    Liliana wrote: »
    the formulas don't make sense when applied to the actual questions in the past papers...
    Lily

    My book didn't teach any formula...was always shows this way instead:

    MATERIAL PRICE VARIANCE
    standard: £5 x 200kg= £1000
    actual: £6 x 200kg = £1200
    variance: £200 adverse

    since I started to use the formulas from the past paper and various comments here, I got confused, because using (SP-AP) x AQ I don't see quite clearly what's I'm calculating and most of the time I was taking the wrong amount!!
    So I now prefer to get back to my own original way, even it's a bit longer, at least it's clear what I'm doing.
  • mark130273
    mark130273 Registered Posts: 4,234 Beyond epic contributor 🧙‍♂️
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    whats getting me is i dont know which one im meant to be studying for monday and which one for thursday ..........i think they are the same subject but put in different formats....
  • cs_1988
    cs_1988 Registered Posts: 231 Dedicated contributor 🦉
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    Mark,

    I would go through the past exam papers, the questions every year are extremely similar. If you go through say 5-10 of each you will be able to recite the exam before you get in there!!

    Chris
  • Liliana
    Liliana Registered Posts: 39 Regular contributor ⭐
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    Hi Chris
    I am struggling with the first section at the moment as i am taking it by sections... don't want to do too much of it otherwise i think i will quit the all thing together...
    I am going through the papers on questions 1.1...
    Lily
  • cs_1988
    cs_1988 Registered Posts: 231 Dedicated contributor 🦉
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    Hi Liliana,

    Section 1.1

    Material Price Variance - Basically the differance between the price they paid for what they used, and the price they should have paid (using the standard/Budgeted Cost) for the actual quantity.

    ie. A nail (Hammer and Nail!!) Standard Cost is £3, they bought 4 Nails for £10. The Material Price Variance is then - (4x£3) - £10 = £2 Favourable. It's favourable because they paid less than they should have

    Material Usage Variance - Basicall the differance of how much material/units they should have used and how much they did use, you then times this by the standard cost per unit.

    ie. A Box of Nails Should Contain 100 Nails, in production of making 1 box they used 110 Nails, the material usage variance is (100-110) x £3 = £30 Adverse. This is adverse because they used more than they should have. Remember to multiply the differance by the STANDARD cost of the unit.

    Labour Price Variance - Basically the same as Material Price Variance, the differance between how much labour should have cost and how much it did.

    ie. A employees standard labour rate £5, they spent £16.50 on three labour hours. The formula is (3x£5) - £16.50 = £1.50 Adverse, it's adverse because they spent more than they should have

    Labour Material Useage Variance - Basically The same as material usage variance, how many hours they should have spent on labour, and how many they did. At the Standard Rate!!

    ie. An employee makes 10 boxes of nails in an hour, 50 Boxes of nails were made in 7 hours. It should have taken the employee 5 hours, therefor the formula is (5-7) x £5 (Standard Cost) = £10 Adverse (Because they spent more than they should have!

    Let me know if that helps, if it does i will go into fixed overheads.

    Chris
  • Liliana
    Liliana Registered Posts: 39 Regular contributor ⭐
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    Hi Chris
    That is really good!!! wow!!!
    Thanks for that!!!
    Lily
  • cs_1988
    cs_1988 Registered Posts: 231 Dedicated contributor 🦉
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    Hi Liliana,

    On to fixed overhead variances,

    Fixed Overhead Expenditure Variance
    Budgeted Costs of FO - Actual Costs of FO - Nice and Simple!

    ie. Budgeted Costs for Fixed Overheads were £100,000, they actualy spent £108,000. Therefor 100,000-108,000= -8000, it's adverse because more was spent than planned.

    Fixed Overhead Volume Variance
    Absorption Rate x (Standard for Actual Output - Budgeted Output)

    The absorption rate in normally stated in the exams, it is important to look whether it's units based or hours based, and then the bits inside the brackets will be the same, the formula's below work on the same principal.

    Fixed Overhead Efficiency Variance
    Absorption Rate x (Standard for Actual Output - Actual Taken)

    Fixed Overhead Capacity Ratio
    Absorption Rate x (Actual Taken - Standard Hours for Budgeted Output)

    The best tip for fixed overhead is to make sure that the Capacity Ratio + Efficiency Ratio = Volume Ratio (Rememeber one, or both the numbers might be negative)

    If there is anything else you need a hand in let me know!

    Chris
  • Liliana
    Liliana Registered Posts: 39 Regular contributor ⭐
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    Hi Chris
    Thank you for that!
    With your help i have improved my first section of the past papers as i am not doing as many errors as i was yesterday... its just applying the formulas and it all seems to fall into place...
    Thank again for the above formulas on fixed overheads... i am not happy with these when doing the papers as i always get something wrong or missing a figure, but now with your formulas i will try and apply them onto the papers...
    Just one more question, i am trying to finish the Dec 04 paper and i can't get my head around the labour capacity ratio.
    I have a formula for it and is as it follows:
    Capacity ratio = actual hrs worked/budgeted hrs
    If i applied the figures to this formula:
    for factory A:
    70000/75000 = .93????
    for factory B:
    140000/85000 = 1.67???
    The actual answers on the paper are Factory A 107.1% and Factory B 60.7%!!!!
    What am i doing wrong? Is this not the correct formula?
    Thanks again,
    Lily
  • ly.mason
    ly.mason Registered Posts: 12 New contributor 🐸
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    Hi Liily

    You have your figures the wrong way 75000 / 70000 x 100 = 107.14%
    I sat for ages trying to figure this out !!!
  • Liliana
    Liliana Registered Posts: 39 Regular contributor ⭐
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    Oh my God!!!
    Thank you so much ly.mason!!!
    I think i am going to mess up this paper with so many formulas to remember, to which way they have to go... oh well, there is always next year!!!
    Thank you again!
    Lily
  • Londina
    Londina Registered Posts: 814 Epic contributor 🐘
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    ly.mason wrote: »
    Hi Liily

    You have your figures the wrong way 75000 / 70000 x 100 = 107.14%
    I sat for ages trying to figure this out !!!
    Liliana wrote: »
    Oh my God!!!
    Thank you so much ly.mason!!!
    I think i am going to mess up this paper with so many formulas to remember, to which way they have to go... oh well, there is always next year!!!
    Thank you again!
    Lily



    that's my point...I don't use formulas for variances, otherwise I would get more confused and put numbers the other way round!
  • anniem
    anniem Registered Posts: 1,326 Beyond epic contributor 🧙‍♂️
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    Thank you cs_1988 I found the information you posted on this thread really useful!
    FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
  • Jimmyboy1888
    Jimmyboy1888 Registered Posts: 32 Regular contributor ⭐
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    ly.mason wrote: »
    Hi Liily

    You have your figures the wrong way 75000 / 70000 x 100 = 107.14%
    I sat for ages trying to figure this out !!!


    I'm confused by this too. I know the above is shown as the answer but, as Liliana correctly said (as far as I'm aware), Capacity ratio = actual hours/budgeted hours x 100. In the question, budgeted hours is shown as 75000, not 70000 ? I've assumed the actual hours are the capacity hours of 70000 as this is the only other labour figure I can see.

    PEV - December 2004 Question 2.1 (g) refers.

    Any help much appreciated.

    Cheers

    Jim
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    There can't be an actual figure
    The figures are forecasts

    Instead think about capacity as you would in normal circumstances.
    If you have 10 staff working 40 hours per week you have capacity of 400 hours

    If the bookings come in amount to more than 400 hours then you will be working at more than 100%. So you'll need to bring in extra staff.

    The formulae are good but only apply when you are looking back over a period and comparing how many hours were used with the budget.
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • Jimmyboy1888
    Jimmyboy1888 Registered Posts: 32 Regular contributor ⭐
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    Thanks again Sandy !
    I can see the logic. Just wonder why we are taught formulae that doesn't apply in all instances.
    Foolishly, I thought the formulae were set in stone !

    Much appreciated.

    Cheers

    Jim
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    It is so important to apply the formulae to the question

    I often use a JIT production environment question for revision.

    Closing stock is only made up of raw materials in such a scenario, so you must compare like with like when calculating the stock holding period
    The formula you would use for finished goods (closing stock(FG)/cost of sales x 365) is not appropriate for stocks made up of only raw materials: here you should use closing stock(RM)/material purchases x 365
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
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