FPFM Sample Assesment 1.6 Theory HELP !!!!!!!

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My financial performance exam has been holding me down for a while now.
The main reason for this is the typing or the theory part. I'm also tend to miss-interpret the questions of these types.
So I've been practising it quite often now. But I'm not sure about the language and the presentation of my work is up to the expectation of these questions.
I've attached my working below please let me know if this could work, and also comments or recommendations would be great too.
Thank you all.

The following answer is to the FPFM sample assessment 1
Question 1.6

>> TOTAL DIRECT MATERIAL VARIANCE
Its used to find the difference between total flexed or standard cost and actual cost .
To calculate we first find the cost for producing 1 budgeted unit

> (£880000/20000 units) = £44 for 1 budgeted unit

Now that the cost per unit is the same for budgeted and actual output, which brings to £924000 (£44 X 21000 unit)

Now we find the variance between flexed rate and actual rate.
> (£924000 - £954500) = -30500 (Adverse Variance)

>> MATERIAL PRICE VARIANCE
Total direct material variance can be split into material price and usage variance.
Price variance are calculated by finding the difference between budgeted and actual cost per material.
We first find standard cost.

>(£880000/80000 kg) = £11

Similarly we calculate the cost for 1 actual material

>(£954500/83000 kg) = £11.5 for 1 actual material.

Finally we multiply their difference by actual quantity (83000kg)
>83000 (11 - 11.50) = -41500 (Adverse variance)

>> MATERIAL QUANTITY VARIANCE
Quantity variance are calculated by finding the difference between quantity used before to produce certain product and Actual Quantity used to produced the same number of product at present.
We already have found Standard quantity (84000kg) and standard rate (£11) and actual quantity is given (83000kg)

>11 (84000-83000) = 11000 Favourable variance

>> (Material price variance) + (Material Quantity Variance) = Total direct material variance
(-41500) + (11000) = (-30500)

Answers

• Registered, Moderator Posts: 2,034
Dear ritz45

It is over a month since you posted your question.
In the absence of any other forum user responding, I'll have a go.
1. Unlike you, I am not aware of the FPFM sample assessment task 6 requirements
2. I had a book published in 2013 which had a bias towards this specific exam https://www.amazon.co.uk/Management-Cost-Accounting-Dummies-Holtzman/dp/1118650492?ie=UTF8&*Version*=1&*entries*=0
3. I often found similar questions when this was a paper based exam. These asked things such as:
4. Using this information prepare a report to the Managing Director to cover an analysis of each variance by:
(1). Identifying the sign for variances which have not already been identified
(2). Explaining what the variance means
(3). Providing possible reasons for each variance
(4). Explaining any links between the variances

If FPFM sample assessment task 6 has asked the 4 questions above, then you must address all of them.
I've copied your Material Price Variance answer:
Price variance are calculated by finding the difference between budgeted and actual cost per material.
We first find standard cost.

>(£880000/80000 kg) = £11

Similarly we calculate the cost for 1 actual material

>(£954500/83000 kg) = £11.5 for 1 actual material.

Finally we multiply their difference by actual quantity (83000kg)
>83000 (11 - 11.50) = -41500 (Adverse variance)
1. This addresses the sign (adverse or favourable)
2. It shows how it is calculated. But it doesn't explain what it means. Here the £41,500 adverse means that the price being £0.50 more per kg than the standard has caused the company to have to pay £41,500 more than they would expect for that level of production.
3. It gives no facts from the scenario to explain why the company have paid more than the standard. Has the purchasing manager found a shortage in the market for the specific raw material, and had to go to a higher specification to have enough for the needs of production?
4. It makes no attempt to link this variance to any other variances. Has a higher quality raw material been used causing a favourable material usage variance?
I have referred to Management and Cost Accounting for Dummies. If you use this book look in chapter 16.

My advice was based on my assumptions. If I am wrong, please present the task requirements your suggested answer was attempting to address and I will try to give you further guidance.
Sandy
[email protected]
www.sandyhood.com
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