Costs questions!

Sammmy88

Just a few questions I have I can't seem to work out.

On the aat practice paper, task 2.1 on the on the batches sold and produced. I can work out everything except for the fixed element. I am insure at how to work this out.

Also on task 2.4 the budget and actual performance, I am unsure as to how to work out the operating profit, as every answer I get is different from practice answers!

Just soooo worried about this exam!

amyjayne27

Hi Sammy, which aat practice paper is it? If you tell me the year and if June/Dec or send me the question I can try and explain it better that way.

Thanks,

Amy

welshwizard

Hi there

Hope you don't mind me butting in....

I am looking at Broadsword from the Word practice assessment on the AAT pages:

Task 2.1

You are told that the semivariable costs for 3,000 units is £7,380 You're also give the semi-variable cost for £1,200 units as being £3,780:

£7,380 - £3,780 = £3,600
3,000 units - 1,200 units = 1,800 units

Now you divide the cost by the number of units: £3,600/1,800 units = £2.00/unit (the variable element.

If the variable element for 1,200 units is 1,200 units x £2.00 = £2,400, the fixed element must be £1,380 (£3,780-£2,400 = £1,380)

Now we can work out the fixed and varaible element for each level of production

1,500 units x £2.00 = £3,000 + fixed £1,380 = £4,380
2,000 units x £2.00 = £4,000 + fixed £1,380 = £5,380


As for Task 2.4 I assume that you're adjusting the direct materials and labour for the new level of production whilst keeping the overheads fixed at £980,000>

In the orignial budget materials were £350,000 for 100,000 units so:

£350,000/100,000 = £3.50 per unit
Now we use this to flex the budget to the actual production of 144,000 units:

£3.50 x 144,000 = £504,000

Do the same for the Direct labour and revenue

Remember with these the term 'direct' relates directly to the costs (materials or labour) that we can directly associate with the production.

The operating profit is the Revenue (also reworked to reflect the flexed budget) - direct costs - overheads

Hope this helps

Sammmy88

Hi Amy, it's the practice CBA on the aat website!

Thanks welsh wizard that's been a huge help! Makes sense to me now!

One more thing though on task 2.5, I know how to work out the pay period in the table and whether or not it is negative or positive. I am just stuck on how you actually work out the payback period in years/months?

SandyHood

From your quote:

I know how to work out the pay period in the table

I won't go through the cumulative cash flow point in general.

At the point where you find that say £20,000 is needed to payback a project at the start of year 4, and there is a net cash flow of £24,000 in year 4.

Then you know that at some point in year 4 the project reaches the payback before going on to end the year as +£4,000

If you assume that cash flows during year 4 accrue evenly throughout the year,
then the exact point in year 4 is £20,000 x 12 months = 10 months
..............................--...........£24,000

This gives a payback period of 3 years and 10 months

The formula is
........... the amount required to payback in final year x 12 months = months in final year, add the number of full years
...........................the final year cash flow

Sammmy88

Oh I see that makes total sense now! I was just getting really confused.

Also another confusing point and its the last one (promise :-p). Is in Task 1.1, I am comfortable with AVCO, but if the same question where to say LIFO or FIFO, the bit that confuses me, is the receipts and what to value the stock at...

amyjayne27

Hi Sammy, looks like your queries have all been answered :-) You will be fine on this exam, sounds like you know most of it just a few little things confusing you, I did this exam a couple of weeks ago and was really worried about it and passed so I am sure you will be fine.

Amy

SandyHood

Have a look at this blog
There are 3 parts to the stock valuation section (so my apologies for giving you so much to read - I hope it provides a useful refresher)
stock 1
stock 2
stock 3



I hope it helps, if not please put a question together here and I'll try to help

Sammmy88

Unfortunately I still don't understand how to work out the cost per kg in the issues part :-(

SandyHood

Sammy
Imagine that every kg you buy has a price label on it

You collect them in date order

Then when you issue stock you allocate the price labels in date order (for FIFO) and in reverse date order for (LIFO)

Say you had 20,000 kgs in stock last night made up of
5,000 that arrived 3 weeks ago at £10 per kg
9,000 that arrived 2 weeks ago at £11 per kg
6,000 that arrived last week at £12 per kg

And this morning a single requisition arrived for 16,000 kgs

This would have to be charged as
5,000 £10 £50,000
9,000 £11 £99,000
2,000 £12 £24,000

A total of 16,000 kgs and a total cost of £173,000

That should be the end of the story, but I am guessing that you want an average cost for that issue. If so:
£173,000 = £10.8125 per kg
16,000 kgs