Budgeting

Kelly7

Hi all

I have 3 lessons left in my budgeting class but that is supposed to include 2 weeks of revision, I went through one exam on here on Sunday and felt deflated so I've come back today to try again and got stuck on a question. I've thought it's better to ask on here in case anyone can help and hopefully if I come across anything like this in my exam I will be able to do it.
It is the paper 2 of the old style

Production Budget
Opening Inventory 3,000
Production 39,000
Sub total 42,000
Sales 38,000
Closing inventory 4,000

Materials kg £
Opening Inv 1400 3,300
Purchases 31000 77,500
Sub total 32400 80,800
Used in Production
Closing inventory

I am told that each unit uses 0.8kg of material and closing inventory will be valued at the budgeted purchase price.

So, I've never seen a sub total box before but I can obviously see where that is coming from but I can't work out how to get the answers for the other 4 boxes.

The answers are

Used in production 31,020 77,800
Closing inventory 1,200 3,000


I know it's probably really easy but I've sat here for about 45 mins and can't see it.

Thanks in advance for any help

Kelly x

Cudey

Kelly7 wrote: »

Hi all

I have 3 lessons left in my budgeting class but that is supposed to include 2 weeks of revision, I went through one exam on here on Sunday and felt deflated so I've come back today to try again and got stuck on a question. I've thought it's better to ask on here in case anyone can help and hopefully if I come across anything like this in my exam I will be able to do it.
It is the paper 2 of the old style

Production Budget
Opening Inventory 3,000
Production 39,000
Sub total 42,000
Sales 38,000
Closing inventory 4,000

Materials kg £
Opening Inv 1400 3,300
Purchases 31000 77,500
Sub total 32400 80,800
Used in Production
Closing inventory

I am told that each unit uses 0.8kg of material and closing inventory will be valued at the budgeted purchase price.

So, I've never seen a sub total box before but I can obviously see where that is coming from but I can't work out how to get the answers for the other 4 boxes.

The answers are

Used in production 31,020 77,800
Closing inventory 1,200 3,000


I know it's probably really easy but I've sat here for about 45 mins and can't see it.

Thanks in advance for any help

Kelly x

Hi Kelly,

I have the budgeting exam tomorrow so have been tackling these all week.

Okay first of all work out how many are used in production. You're told you are producing 39,000 units - and each unit uses 0.8kg of material. Therefore 39,000 x 0.8 = 31,200 (think you did a typo)

From here I work out the closing inventory for materials. This is done by taking your Subtotal and subtracting your Used in Production figure. So 32,400 - 31,200 = 1,200.

Now, we're told the closing inventory is valued at budgeted purchase price. In the materials budget we have bought 31,000 for £77,500. So £77500/31,000 = £2.50 which is our budgeted price per Kg.

Our closing Inventory is 1,200. Therefore 1,200 x 2.5 = 3,000.

The last part is to value the units you've produced. You have a subtotal of 80,800 and a closing of 3,000. Therefore 80,800 - 3,000 = 77,800.

Hope that makes sense. Let me know if you need further help.

Kelly7

Aww thank you so much for explaining that. I've just gone through it again and I think I get it now. Going to copy your answer down so I can refer to it if I get stuck again.

I got through the labour and overhead section ok but I can't work out how the closing inventory figure is £12,200. It says the closing inventory is valued at the budgeted cost per unit, so I thought 4000 x 2.50 which gave me £10,000. Did you work it out as £12,200?

Very scary that we've been doing this sort of thing for the last couple of weeks at college and I still can't get this right. The layout, questions and sub titles seem quite different to how we have been doing it.

xxx

SandyHood

Do you recall FIFO and AVCO from your level 3 studies?
This is fundamental to understanding how to answer the question here.
FIFO means that the production cost in the period is used to find the value of the closing inventory - afterall all the opening inventory value would be part of the cost of sales (being the first inventory in).
AVCO means that the production cost in the period AND the opening inventory value have to be added together, and then divided by the total units available for sale (opening inventory plus units produced) to determine the cost per unit.

SandyHood

The wording suggests that this is a FIFO question

Production was 39,000 units and cost the total of £77,800 for materials, you haven't stated the labour and overhead costs but I suggest that the total cost of production might be £118,950.
On this basis the cost per unit produced is £3.05
And as 4,000 remain in the closing inventory then the value of this has got to be based on the cost per unit produced:
4,000 x £3.05 = £12,200


This will then lead to the cost of sales being made up of the opening inventory plus35,000(of the units produced in the period) x £3.05 per unit

SandyHood

The wording suggests that this is a FIFO question

Production was 39,000 units and cost the total of £77,800 for materials, you haven't stated the labour and overhead costs but I suggest that the total cost of production might be £118,950.
On this basis the cost per unit produced is £3.05
And as 4,000 remain in the closing inventory then the value of this has got to be based on the cost per unit produced:
4,000 x £3.05 = £12,200


This will then lead to the cost of sales being made up of the opening inventory plus 35,000 (of the units produced in the period) x £3.05 per unit

SandyHood

I've seen the question you have been referring to - task 1.3 from http://www.aat-interactive.org.uk/elearning/new/BGT_practice_CBT_2/

Kelly7

Thank you both, I will keep re reading this and I'm still not getting this - along with half of the other questions. I failed another practice text tonight. Wish the answers showed you the calculations too. X

SandyHood

Dear Kelly
Please look at one of your other threads.
I give you the link to the study guidance. I have seen how much trouble you have had trying to answer the sample questions, I don't think you are at the practice assessment stage yet.I think you need to go back to the syllabus. Then master the content of the syllabus. If you attempt the sample exams before you are ready you could fall into a trap. You might expect all the exams to be the same as the sample, and try to pass by merely learning how to pass the sample exams. What would you do if syllabus items not tested in the sample exams turn up in your real exam?

Kris1990

Hi Kelly

Keep doing the mock assessments, write down what questions you are getting wrong, then do as many examples as you can find until you get them right After doing the same type of question 4-5 times it will sink in

Kelly7

Thank you both. I seem to be getting the hang of some of the other questions now and can see where I was going wrong. I am glad I have tried to the practice assessments to give me an idea of how they word things, this can be the most confusing part sometimes, working out exactly what they're asking when you could probably answer easily if it was worded a different way.

I have screen capped some of my questions which I might email to my tutor or at least print off and take in next week to say these are what I'm having trouble with, can you go through them with me, or even the class as I'm sure others are probably having the same problems if they have been trying.

Kelly xxxx