Financial Performance Help

Sammmy88

I need urgent help!!

I have my re-take tomorrow, and the one thing i failed miserably on is on CBT 2: Tasks 1.2 and 1.3..

Please can someone help?

Thank you

Morpheus1980

Hi Sammy, let's see if I can help on CBT 2 1.2 first of all:

Direct material usage

Take the actual amount of materials used (1,000) and price it at the standard rate (£9,000 / 1,000 litres = £9). This makes £9,000

Then, flex the budget to arrive at how much material we should have used. So, divide 1,000 litres by 200,000 then multiply by 190,000 (actual units) to arrive at 950 litres, and multiply by £9 (standard cost per litre). This makes £8,550

As the actual cost of material used was £450 more than budgeted, this makes it adverse

Direct material price

Actual price for actual material purchased is £8,500
Actual materials purchased (1,000 litres) x standard cost (£9) is £9,000

As the price we paid for materials is £500 less than budgeted, this is favourable

Direct labour rate
Actual price for actual labour is £5,760
Actual labour hours (360) at the standard rate (£15...flex the budget for this, so £6,000 / 400 hours) is £5,400

As the rate we paid for labour is £360 more than budget, this is adverse

Direct labour efficiency

Actual labour hours at standard rate (calculated above) is £5,400
Hours we should have incurred for labour (again, flex the budget so £6,000 / 200,000 units x 190,000 units) is £5,700

As the amount we paid for actual labour is £300 less than budgeted, this is favourable

Does that make any sense? I find that you have to keep practicing variances over and over again to get them.

I'll now have a look at task 1.3 for you.

Morpheus1980

Task 1.3:

Fixed overhead capacity

First, we are told that production overheads are absorbed on a labour hour basis, so we use labour hours here (4,250)

Multiply 4,250 by the standard cost of fixed overheads (£104,125 / 4,250 hours = £24.50) = £104,125

Actual hours at standard cost is 4,200 hours x £24.50 = £102,900

As the actual overheads are £1,225 under the budgeted capacity, they are adverse

Fixed overhead expenditure
Budgeted overheads are £104,125
Actual overheads are £98,450

As our actual overheads are less than budgeted, the £5,675 difference is favourable

Fixed overhead efficiency
Actual hours at the standard rate is 4,200 hours x £24.50 = £102,900

Actual hours that should have been used for production - flex the budget. 4,250 hours / 17,000 units x 18,000 units = 4,500 hours. Multiply by the standard rate of £24,50 = £110,250

As the hours we used for production are less than budgeted, the £7,350 is favourable

Morpheus1980

Oh, and Sammy, if this all appears like double Dutch, check out the Fixed Overhead Variances worksheet, which is available under My AAT > E-learning resources and Green Light Tests > Level 4 Diploma > Financial Performance, because this explains all of the fixed overhead variances.

Don't panic, and good luck for tomorrow

Sammmy88

Thank you so so much! Makes so much more sense!! :-)

omega man

Morpheus-check your work
I think the last answer is £7350 favourable

Morpheus1980

Oops! Transposition error. I did my workings though, so should still get 1 mark *wink*