Possibly the most stupid PEV question ever!

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twinmeister
twinmeister Registered Posts: 122 Dedicated contributor 🦉
My brain is aching and I think I have lost all prior accounting knowledge revising PEV.

I'm doing Nov 2009 past PEV paper. Section 2.2 calculating gross profit for the capsules.

Here goes the most stupid PEV question of all time:

Is a fixed production cost a direct cost? I thought all fixed costs were deducted from GP to give net profit.

Isn't a fixed direct cost a tautology. What could it be? Production machinery set up cost?

When we are looking at fixed overhead variances throughout the PEV papers (FOExpenditureV, FOVolumeV, FOEfficiencyV and FOCapacityV)are these for fixed production overheads only or for fixed non-production overhead too?

I know - I am ashamed of my own question!

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  • mrspnut
    mrspnut Registered Posts: 70 Regular contributor ⭐
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    They're for any fixed cost, and yes 90% of passing the management accounts papers is actually understanding the question in the first place.
  • mrspnut
    mrspnut Registered Posts: 70 Regular contributor ⭐
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    BTW, I did that paper today for the second time and it wasn't any easier.
  • twinmeister
    twinmeister Registered Posts: 122 Dedicated contributor 🦉
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    thanks for the help.

    Now confused by contribution. I know it's sales less variable costs, but is that sales less direct material, direct labour and fixed production costs OR sales less direct material and direct labour costs only?

    It's the ECR basics I seem to have completely forgotten as I sat that Dec08.
  • A-Vic
    A-Vic Registered Posts: 6,970 Beyond epic contributor 🧙‍♂️
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    all i can suggest is think of semi variable costs i.e telephone bill they are a mix of fixed (line rental) and calls (variable) in that case you separate the fixed and varible element
  • Jimmyboy1888
    Jimmyboy1888 Registered Posts: 32 Regular contributor ⭐
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    thanks for the help.

    Now confused by contribution. I know it's sales less variable costs, but is that sales less direct material, direct labour and fixed production costs OR sales less direct material and direct labour costs only?

    It's the ECR basics I seem to have completely forgotten as I sat that Dec08.
    Hi,
    It's sales less the variable costs as you say (labour and materials and any other variable).

    Contribution is the amount contributable to fixed costs and profit.
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