PEV:Tips for effective ratio and variance analysis

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msami4
msami4 Registered Posts: 17 New contributor 🐸
in AAT Level 4 (Level 8 in Scotland)
Hi everyone.I'll be resitting PEV for the 3rd time this Monday.In terms of practice I am quite ok with the calculations.Can you guys please suggest me of any tips for doing good and effective analysis on the Variances in section A and the ratios in section B as I see that these are my weakest part in PEV.

Good luck to all those preparing for upcoming AAT exams :)

Regards and thank you

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  • Jentel
    Jentel Registered Posts: 60 Regular contributor ⭐
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    I to will be resitting for the 3rd time, not to discourage those taking in for the 1st time. Just want to wish all luck to but don't suppose i would be any good at offering tips so any responses to msami4 will help me to
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    Analysis - relate back to the scenario

    This is my first (and hopefully last!) PEV but as far as I can tell from past papers, the main trick with the analysis of variances is to relate back to the scenario given. So, don't just say that an adverse material price variance shows they paid more for the materials, but give a reason why this might be - e.g. because there is a greater demand for that kind of material or because they bought less so couldn't get the discount they were expecting.
    Hope this helps
    good luck on Monday
  • Andypandy
    Andypandy Registered Posts: 526 Epic contributor 🐘
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    It was mentioned that the examiner was fed up with people giving advice based on ROCE, without looking at investments in non-current assets, so I'm taking this as a large hint. Best of luck for Monday.
  • aimeexox
    aimeexox Registered Posts: 38 Regular contributor ⭐
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    On ratio analysis when comparing scenario 1 and scenario 2 etc in section 2 (June 2008 pev paper) I seem to be describing everything the other way round to the examiner...

    e.g this is what I said: The fixed cost per unit has decreased in scenario 2 which therefore increases the gross profit margin as the fixed costs are spread over more sales volume units.

    This is what the examiner said: The fixed costs per unit are higher under scenario 1 because less volume is produced (£300 per unit as opposed to £214.29 per unit for scenario 2). This would reduce the margin.



    Does it matter?
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    I can't see why it would matter which way round you put it - you've got the point so you should get the credit.
  • Crees
    Crees Registered Posts: 8 New contributor 🐸
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    Crees

    Hi, I am in agreement with EAP - it is the understanding of it.

    On another topic - does anyone know which book i can find 'how to' discounted lifecycle purchasing ... it was in the Jun09 paper ... and i want to read up about it before tackling the question. Have vague memory ... but i am sure calculations were not @ tech level .. could've sworn i learnt it at intermediate level !!! (Have taken PEV a few times - giving it one 'last push' from home. No tutor available at the moment)!!!

    Thanks all.
    crees
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    It was Unit 6 - ECR - long term decision making,
    I panicked a bit when I saw this one raise it's ugly head again but look at the model answer for June 09 and you'll see it's pretty straightforward. You just have to remember that the year of purchase counts as year 0 and discount factor is 1 - then multiply each year's running costs by the discount factor (they will give you all the other discount factors) and then the final year there may be a gain on disposal which you knock off your running costs for the year before you calculate the discounted cost.
    add up all your discounted costs to get the net present value.
    hope this helps
  • Crees
    Crees Registered Posts: 8 New contributor 🐸
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    crees

    Hi EAP,

    You are a real life saver ... it took my panicked brain a little while to allow your words to sink in .. but, i now remember how to do it. I was horrified at myself for not recalling it ... it was easy at the time i learnt it (about 5yrs ago!!) and it is easy now I have worked it out with your gallant help. In calculating ..I even remembered the significance of paying in arrears or in advance.

    Thank you so much. I can now go and watch the england match without feeling guilty.
    thank you once again ....
    .... oh yes .. i saidn that.

    crees
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    Hi Crees
    Happy to help - it also helps it stick better in my mind.
    Can't wait till next Wednesday lunchtime - it will all be over and I'll be heading to the pub for a well earned drink!
  • Crees
    Crees Registered Posts: 8 New contributor 🐸
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    crees

    Hi EAP, & all

    Good Luck to you all.

    Hopefully after tomorrow i can pass wisdom to others. :-)
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    Thanks Crees
    Good luck to everyone for tomorrow and the rest of the week.
    It will soon be over....
  • msami4
    msami4 Registered Posts: 17 New contributor 🐸
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    Thanks for everyone for the tips on analysis, specially EAP.

    All the best to everyone for tomorrow hopefully for me and all of you attempting PEV it's the last time sitting PEV :D

    Wish you guys all the best

    May God bless all of us !

    Regards,

    Sami

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