Help - Forecast operating statement

jane

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

Rinske

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.

jane

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

crispy

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.

jane

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

crispy

Looks all good to me - glad to be of help

Rinske

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!

Rinske

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...)

jane

Thanks both very much for your help, it is so much appreciated.

Jane