FPFM Financial Performance - AAT Sample Assessment 1 - Task 5 - Index Numbers

Hello All,

Could someone help me please. I thought I had index numbers ok in my head, but task 5 of the FPFM sample assessment 1 on the AAT website has completely thrown me.

It says Keta operates a standard costing system and uses raw material C2X which is a global commodity. The standard price was set based upon a market price of £450 per litre when the material price index for C2X was 120.50. The following information has been gathered:

- the price index increased to 126.525 in June X3
- the raw material price variance for June was £375,000 adverse
- 12500 litres of material C2X were purchased in June.

It then asks you to complete the following statements:

a - The part of the variance explained by the increase in the price index is - £
b - The part of the variance not explained by the increase in the price index is - £

The answers are a) £281,250 and b) £93,750 but I cannot work out how to get to these figures.

Any help would be most appreciated.

Thanks
Ed
tanna44

Comments

  • crispycrispy Trusted Regular SouthamptonPosts: 454Registered
    Hello,

    The standard was 12,500 litres @ £450 = £ 5,625,000
    We know there an adverse variance of £ 375,000
    Therefore the actual cost must of been £ 5,625,000 + £ 375,00 = £ 6,000,000
    The actual cost per litre £ 6,000,000 / 12,500 litres = £ 472.50

    If we re-index the cost per litre to current figures £ 450/120.50*126.525 = £ 472.50

    So,
    Variance not explained by indexing = £ 480 - £ 472.50 * 12,500 litres = £ 93,750

    Variance expained by indexing = £ 22.50 (£ 472.50 - £ 450) * 12,500 litres = £ 281,250

    Feeling helpful :) Hope this correct
  • crispycrispy Trusted Regular SouthamptonPosts: 454Registered
    Oops, actual cost per litre is £ 480 - the rest looks ok :P
  • eddzter1978eddzter1978 Posts: 6Registered
    Thank you so much! Amazing.
  • titititi Posts: 8Registered
    what about how to calculate the percentage task 1.5 (q) C
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