Financial Performance CBA2

Craig9

Can someone please help me with question 1.3b on the practice CBA 2.

Budgeted output 5,000 units
Actual output 5,500 units
Budgeted overheads £300,000
Actual overheads £320,000
Budgeted labour hours 55,000
Actual labour hours 58,000

It asks for the volume variance....

The answer seems to be doing 300,000/5000 = £60 per unit absorbtion rate x 5,500 = £330,000 absorbed, less 300,000 budgeted = £30,000 favourable. (thought this was capacity variance)

I thought since it gave labour hours then I should do what would have been absorbed on budget = 55,000 hours/5000 units = 11 per hour x 5500 = 60,500 hours x absorbtion rate of 300,000 cost/55,000 hours = £5.45 x 60,500 = £329,725 (29,725 fav)

SandyHood

Craig9 wrote: »

Can someone please help me with question 1.3b on the practice CBA 2.

Budgeted output 5,000 units
Actual output 5,500 units
Budgeted overheads £300,000
Actual overheads £320,000
Budgeted labour hours 55,000
Actual labour hours 58,000

It asks for the volume variance....

The answer seems to be doing 300,000/5000 = £60 per unit absorbtion rate x 5,500 = £330,000 absorbed, less 300,000 budgeted = £30,000 favourable. (thought this was capacity variance)

I thought since it gave labour hours then I should do what would have been absorbed on budget = 55,000 hours/5000 units = 11 per hour x 5500 = 60,500 hours x absorbtion rate of 300,000 cost/55,000 hours = £5.45 x 60,500 = £329,725 (29,725 fav)

Budgeted labour hours per unit 55,000 hrs/5,000 units = 11 hrs/unit
Budgeted OAR £300,000,55,000 hrs = £5.45454545 per hour

Standard hours worked 5,500 units x 11 hrs/unit = 60,500 hrs at a standard cost of £330,000

So we absorbed £30,000 more than the budget £30,000 fav variance for volume

I think you would have been correct if you hadn't rounded off the OAR to £5.45

This is where candidates who work in an environment where overhead absorption rates are calculated know that rounding to the nearest pence tends not to happen, so have a slight advantage.
No doubt you'll have an advantage over them in those exams which are on topics closer to your area of work.

Craig9

That's excellent, thanks! Thought I was getting the variance muddled up there but it's just my rounding, will remember that for exam.

I'm also struggling with where they get the target variable material cost for the same exam question 1.8

Price at which product will be sold £70.00
Expects to sell 30,000 at £70.00
Fixed production cost £360,000
Labour requirement is 1.5 £18.00 per hour
Profit margin 30%

I've got the total production cost correct 70.00 x 0.30 = 21 70-21 = 49.00
So for material cost I'm doing - 70.00 SP, fixed - 360,000/30,000 - 12.00, labour 1.5x18 - 27.00, so material 70-12-27-21(profit) - 10.00

The answer shows £22.

I'm still coming out with the correct cont per unit as 70 - 27 - 10 =33.00

So I assume I have the labour cost wrong.....any ideas please?

SandyHood

The information you have posted gives a material cost per unit of £10.
Was that the question?
Have you written the right figures in your posting

~If so, you are right.

Craig9

Yes, those are the figures in the question. I presume the answers AAT have supplied are incorrect as I can't see where they get a CPU of £22

coojee

Craig9 wrote: »

Yes, those are the figures in the question. I presume the answers AAT have supplied are incorrect as I can't see where they get a CPU of £22

I'm glad someone else has raised the issue of this question. I get different answers as well. Answer b is only correct if margin is gross profit but then c and d are wrong. To get c and d right you have to take margin as being operating profit but then answer b is wrong. I thought margin was always gross profit (an operating profit margin of 30% is a tadge too healthy to my mind!) so I get the answers to be:

a) £49
b) £22
c) £21
d) 55239

Does anyone else agree?

Ogaufi

Help with task 1.7 please!

eloise

Hi
With regards for 1.7 in CBA 2 it took me forever as well on part B. The way I worked it out was:

sales price 38*125000 units sold = 4750000
saloes price 40*100000 units sold = 4000000
4750000-400000 = 750000 additional profit

first part of the second bit you need to work out what the contrubution would be so the selling price is £38 and the costs invloved are £16 (variable) = £22 this is your answer for c as well. £1600000/100000=£16

contrubution £22*125000 number of units = 2750000
original contribution 24*100000 number of units = 2400000
2750000-2400000 = 350000 additional contrubution

additional profit
the easiest way is to work out what the additional variable cost would be £16*125000 = 200000 - 160000 = 400000 add on the marketing £300000 = 700000 and take this from the net profit figure they gave you of £650000
this gives additional of £50000

c. the fixed costs given are £175000 + the marketing = £2050000
the contrubution you worked out earlier at £22
2050000/22 = 93181.81

I hope this helps, I couldnt find any futher examples of this so Im not sure if this is the correct way but it got me to the right answers