Question for Sandy Hood

jewels.p

Hi Sandy,

I see you are advising people as to what's likely to come up in their exams. Can you advise as to what's likely to be focused on in ECR?

I know anything in the syllabus can be covered but just wondered if you had any advice from a professional point of view.

Thanks

Julie

SandyHood

I took the London ECR Revision Day
Section 1
stock
stock control inc buffer stock
labour inc productivity bonuses
overhead analysis inc splitting fixed and variable overheads
Under-(Over) recovery of Overhead
product cost calculations
process costing
Section 2
‘relevant’ and ‘irrelevant’ costs
Cost Behaviour
Break even analysis units (plenty of examples) or value (not yet examined)
Margin of Safety remember to work out the % of forecast sales
Limiting Factors usually a layout is provided, but expect to have to find the maximum possible profit
Capital Investment Appraisal

jewels.p

What is buffer stock?

KVeevers

Hi Sandy ,

thank you for letting us know about ECR, what about FRA?

Melt

Hi Sandy,

Would you be able to post a description of what relevant and irrelevant costs are? I don't remember seeing this at all in my BPP books!

Thanks,

Mel

Ampsie

Hiya,

This question came up in the ECR exam i took last December - this is the answer from the AAt exam site. I have to say - it meant nothing to me at the time and threw me when i was in the exam room. I blabbed about whatever seemed logical but i passed!

Relevant (avoidable) costs are costs that can be saved by not following a course of action, whilst irrelevant (unavoidable) costs are incurred irrespectively. Only relevant costs are considered for short-term decision-making.

Good luck
Ampsie

Melt

Hi Ampsie,

Thanks for that, so I'm assuming that if we had a question where we had to work out the total costs at various levels of activity the variable costs would be relevant and the fixed costs would be irrelevant (as they remain the same no matter what and aren't dependant on the decision to be made regarding volume)?

Mel

Tanya669

Buffer stock it is the same meaning as a minimum stock.
Tanya

SandyHood

Minimum level of stock to be held

= Reorder level-{average usage x average lead time}

= 25,000-(1,200 x4) =20,200 units of TX1

A buffer stock would be an additional ammount to cover unexpected contingencies.
If the business adds 2,800 as the buffer stock, then the minimum stock would be:

= Reorder level-{average usage x average lead time} + buffer stock

= 25,000-(1,200 x4) + 2,800 = 23,000 units of TX1

kamthanki

SandyHood wrote: »

Break even analysis units (plenty of examples) or value (not yet examined)

Hi Sandyhood sorry to distrub you could you pls explain B.E. analysis value pls coz i never
cme accross that value or if u have an example that would b much appreciate.

Thanks

Kam

SandyHood

sorry I don't understand

Andypandy

I think break-even value is the £'s of sales needed to cover variable & fixed costs. Often the question is asked as 'units needed to be sold to break-even, so you could just multiply the units by the selling price.

SandyHood

In June 09 the question only related to one product so AndyPandy's approach would work.

But a pub or restaurant or shop with lotsof different products has to find a break even value

For this:
Fixed costs = Break even VALUE of sales
PV ratio

AliF

relevant / irrelevant costs

Melt wrote: »

Hi Ampsie,

Thanks for that, so I'm assuming that if we had a question where we had to work out the total costs at various levels of activity the variable costs would be relevant and the fixed costs would be irrelevant (as they remain the same no matter what and aren't dependant on the decision to be made regarding volume)?

Mel

Don't forget about the semi-variable costs these will need splitting

SandyHood

Some fixed costs will not be incurred unless a project goes ahead
E.g. a supervisor employed to oversee the new product or advertising of it

If so they would be costs that are "relevant". They would only be incurred if the project went ahead.
They would not be variable, as variable costs are costs that vary dependent on the number of units produced or sold.

spursfan323

But in today's exam...

SandyHood wrote: »

I took the London ECR Revision Day
Section 2
‘relevant’ and ‘irrelevant’ costs
Cost Behaviour
Break even analysis units (plenty of examples) or value (not yet examined)
Margin of Safety remember to work out the % of forecast sales
Limiting Factors usually a layout is provided, but expect to have to find the maximum possible profit
Capital Investment Appraisal

I know it's hard to predict with any certainty, but you do not mention P&L of Marginal Costing v Absorption Costing, and my tutor at Kaplan said it would not be in the exam. But it was in today's paper !! and took a lot of ppl by surprise.

Secondly- there was no Break Even analysis or Margin of safety calculations in the exam, which I thought strange.

Any thoughts?