Help - Forecast operating statement

janejane Well-KnownPosts: 165Registered
Hi all
Please could someone help me, I am battling to understand how to work out other overheads:Variable element on a practice sim

Planned output is 14000 tonnes, selling price £110, I have to draft up the operating statement for this

Predetermined costs at various levels of activity are:-

Tonnes 10000
Direct Labour £89000
D Mat £650000
Var prod overhead £70000
Other overheads £48000
Fixed costs £155000

Tonnes 8000
DL £71200
DM £520000
Var prod Overheads £56000
Other Overheads £42000
Fixed costs £155000

The statement is set out as:-

Sales rev .........
Less Var Costs ....
Other overheads: Var element ....... (this is what i am battling with)
Contribution........
Profit volume......
Other Fixed overheads:-
Fixed element
Fixed costs.........
Operating Profit (Loss)

My mind has gone totally blank and can't see in the books to refer to!!
Any help would be appreciated

Comments

  • RinskeRinske Font Of All Knowledge Posts: 2,453Registered
    Hi Jane,

    In the question you quoted:
    jane wrote: »
    Planned output is 14000 tonnes,

    Predetermined costs at various levels of activity are:-

    Tonnes 10000
    Var prod overhead £70000

    Tonnes 8000
    Var prod Overheads £56000

    70000 / 10000 = 7
    56000 / 8000 = 7

    So variable overheads per tonne is 7.
    You want to produce 14000 tonnes. So 14 times 7 would be the answer you're looking for.
  • janejane Well-Known Posts: 165Registered
    Hi Rinske

    Thanks for your reply, and yes i agree with you there, I calculated it as £98000.00

    But just below this there is a line

    Other Overheads:
    Variable element
    and this is what i am getting confused with

    on the 10 000 tonnes its gives you other overheads of £48000

    on the 8000 tonnes it gives you other overheads of £42000

    ??? very confused
  • crispycrispy Trusted Regular SouthamptonPosts: 417Registered
    Hello,

    Try to use the high/low technique to work out the variable/fixed elements. If you still can't work it out then post again.
  • janejane Well-Known Posts: 165Registered
    crispy wrote: »
    Hello,

    Try to use the high/low technique to work out the variable/fixed elements. If you still can't work it out then post again.

    Hi Crispy

    Thanks for your reply.

    I Have now calculated it as 60 000.00 using the high/low method

    Highest 10000 tonnes £48000 cost
    Lowest 8000 tonnes £42000 cost
    2000 £6000

    The variable cost is therefore £6000/2000 = £3.00 per unit
    So on two above the fixed cost is £18000

    So on 14000 units x £3 = £42000 plus £18000 = £60 000

    Hope this is correct!!! Is this what you would calculate?

    Thank you sooo much for jogging my memory

    Cheers, hope you have a wonderful xmas
  • crispycrispy Trusted Regular SouthamptonPosts: 417Registered
    Looks all good to me - glad to be of help
  • RinskeRinske Font Of All Knowledge Posts: 2,453Registered
    Sorry, I misread your question on that. I just thought they meant the variable overheads, not the other bit.

    I agree with Crispy, try the high-low method and there are a few threads with clear explanations on them, so if you are confused, have a look here:

    http://forums.aat.org.uk/showthread.php?t=26303&highlight=High+Low

    And if that doesn't help, just post what bit you do get stuck on and I'm sure there must be someone who can help you with it!
  • RinskeRinske Font Of All Knowledge Posts: 2,453Registered
    Sorry I'm a bit slow in replying today, while I was writing my post, you two already answered again twice, but that's what I came up with too! (Not sure if that's any help, with me being slow today...)
  • janejane Well-Known Posts: 165Registered
    Thanks both very much for your help, it is so much appreciated.

    Jane
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