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

Registered Posts: 6
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

• Registered Posts: 465 Dedicated contributor ? ? ?
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