Budgeting - Why am I getting the figure for "Used in production" wrong?!

rhian
rhian Registered Posts: 57 ? ? ?
http://i44.tinypic.com/o78x2f.jpg

i've attached a screenshot of an example.... the numbers in the green outline is what i'm asked to fill in and the 27200 in the red outline is where i get stuck.

i do the following:
£2000/2100kg = £0.95 per kg.

£0.95 * 16500kg = £15675 as a total for the column in the red outline. however the answer should be £27200.

my method is a guess, because no matter how many times i read over the book nothing actually explains how to get this 'used in production £' figure. so since the answer isn't correct my method is obviously wrong! i'd be so so grateful for any help!

thank you :)

Comments

  • Jo Clark
    Jo Clark Registered Posts: 2,525
    Hello Rhian

    The way to complete the material section of this operating statement (well the way I do it) is as follows:-

    You are told that production is 30,000 units and each units requires 0.55kg of material = 16,500 kg

    16,500 kg should be entered into the box titled 'used in production' you can then work out your closing stock being opening inventory (stock) plus purchases minus what you used in production i.e. 2,100 + 15,500 - 16500 = 1,100

    You are advised that closing invesntory will be valued at budgeted purchase price. To calculate this figure you need to divide the purchases of kg £ by purchases of kg this will be 27,125 / 15,500 = 1.75 a unit.

    Therefore closing inventory is 1,100 x 1.75 = 1,925.

    I think you are ok with the calculations to this point?

    To get the 27,200 you need to deduct the closing inventory figure from the subtotal figure (opening inventory + purchases) i.e. 2,000 + 27,125 - 1,925 = 27,200

    Hope this helps and my explanation is clear.

    All the best.


    JC
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
    NessaAAT
  • uknitty
    uknitty Registered Posts: 591
    The proudction figures reflect what actually happened in production - so whilst the budget is useful in planning it may not reflect what was actually used.

    To calculate the amount of material actually used you need to find the balancing figure between the subtotal and the closing stock.
  • rhian
    rhian Registered Posts: 57 ? ? ?
    Jo Clark wrote: »
    JC

    thank you so much!!! i fully understand it now... only wish i'd have asked sooner rather than sitting here all puzzled for the past hour or so!!

    thank you again :D

    rhian
  • Jo Clark
    Jo Clark Registered Posts: 2,525
    Hello Rhian

    You are most welcome :D

    How are you finding the rest of budgeting? What other level 4 units have you completed and still have to do?

    Don't hesitate to ask any other questions if you need to...

    All the best!
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • rhian
    rhian Registered Posts: 57 ? ? ?
    Jo Clark wrote: »
    All the best!

    Thank you! This is actually my first level 4 exam and I'm pleasantly surprised except for a few small bits like this! But I only like this one since it's mainly numerical and that's my strong point- I've quickly looked over EXA and the content seems a lot harder so I'm not going to get my hopes up for the rest! :(

    I've chosen to do this level by myself and just do the CBA's as an external candidate- I found college a bit of a waste of time in level 2/3 because most of the time in class was spent just chatting rather than doing any work, I would've learnt a lot faster by myself! Although when I get stuck like this I realise I might actually need a tutor because the book doesn't explain everything. We'll see!

    Could I be really cheeky and ask for help on one more thing?? (Last one I promise!!)

    It follows on from the first question, and it's the closing inventory in the green outline. I've tried so many different methods to get the 10000 but to no avail- which obviously stops me from doing the rest of the table!

    http://i40.tinypic.com/2vloc4y.jpg

    I really don't think o/inventory and c/inventory etc is explained well enough in the book, or I just need to read over it more for it to click!


    Sorry for being annoying and thank you again for your help!
  • uknitty
    uknitty Registered Posts: 591
    It tells you at the side of the balance sheet to value closing stock at the cost per unit of production.

    You need to add up all of the production overheads you have calculated ( i.e. the totals l from the Materials, Labour and Overheads that you have calculated) and divide this overall production cost by the number of units in the production run This will give you production cost per unit.

    Once you know this you just then multiply by the units left in stock (closing stock) to get the value of the closing stock.

    I can't input the figures here cause I can't see all that info on the screen grab, but I hope that makes sense.
    NessaAAT
  • Jo Clark
    Jo Clark Registered Posts: 2,525
    rhian wrote: »
    Could I be really cheeky and ask for help on one more thing?? (Last one I promise!!)

    It follows on from the first question, and it's the closing inventory in the green outline. I've tried so many different methods to get the 10000 but to no avail- which obviously stops me from doing the rest of the table!

    http://i40.tinypic.com/2vloc4y.jpg

    I really don't think o/inventory and c/inventory etc is explained well enough in the book, or I just need to read over it more for it to click!


    Sorry for being annoying and thank you again for your help!

    No worries Rhian, that is why this forum exists so we can all help each other.

    Right - To calculate the 10,000 you need to be aware that closing inventory of finished goods is valued at budgeted production cost per unit. To calculate this figure you know that the total cost of production is 60,000 and that you produced 30,000 units. Therefore the budgeted production cost per unit is 2 (60,000/30,000) and you are told that closing inventory of finished goods is 5,000 so to calculate the value you simply do 2 x 5,000 = 10,000


    Hope this helps and do shout if you have any other questions.

    Out of interest, who are you using/which tuition provider/materials are you using?


    JC
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • rhian
    rhian Registered Posts: 57 ? ? ?
    HUUGE thanks to both of you!! So much clearer than the book. There is a chapter on it but it's amazing how it's clicked now that it's been explained in better words!! Thank you again :D
    Jo Clark wrote: »
    Out of interest, who are you using/which tuition provider/materials are you using?

    I'm applying through BPP and hopefully Kaplan for some of the others (that is, if I'm allowed to sit with two different boards?) It's just that some of the Kaplan CBA dates are more convenient that BPP! And I'm studying with Osborne books, this is what we used throughout college so thought I should stick to what I know!

    Rhian
  • Jo Clark
    Jo Clark Registered Posts: 2,525
    rhian wrote: »
    I'm applying through BPP and hopefully Kaplan for some of the others (that is, if I'm allowed to sit with two different boards?) It's just that some of the Kaplan CBA dates are more convenient that BPP! And I'm studying with Osborne books, this is what we used throughout college so thought I should stick to what I know!

    Rhian

    I think you can sit your CBAs wherever you choose. I know that my local BPP centre offer CBAs every Wednesday afternoon. Don't know where you are from but it may be that your BPP centre will do this or it could be that each centre operates differently based on the different qualifications which they offer.

    When are you due to sit your budgeting CBA?
    ~ An investment in knowledge always pays the best interest ~
    Benjamin Franklin
  • uknitty
    uknitty Registered Posts: 591
    Yes as long as the exam centre will accept you (which is usually just down to nothing more than do they have the space) than you can use whoever is close to you.

    I study with Premier Training but I sit my exams at the Kaplan centre in Liverpool. I'd advise booking your exam well in advance to secure your slot (sometimes the date you want may fill up with internal candidates and they will be given priority for a space)- Kaplan will let you cancel with no fee due as long as you give 1 week notice.

    Just my experience as an external candidate.
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