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AAT Mock Test 1 Task 3.

Hi,

i'm having a mind blank and due to take my second attempt at this exam in a few weeks, please could someone explain how to get the answers please.

Thanks
Sophie



Comments

  • PeterCPeterC Registered, Tutor Posts: 218
    Sales units = 11,000
    Selling price = 90
    So, Sales = 11,000 x 90 = £990,000

    Months 1 and 2:
    Production units = 10,000 + 10,000 = 20,000
    Sales units = 8,000 + 9,000 = 17,000
    Inventory at end of Month 2 = 20,000 - 17,000 = 3,000 units

    Fixed production costs = £450,000
    Other variable production costs = £230,000
    Production units = 10,000
    Fixed production cost per unit = 450,000/10,000 = £45
    Other variable production cost per unit = 230,000/10.000 = £23
    Direct material per unit = £15
    Direct labour per unit = £10
    Variable cost per unit = 23 + 15 + 10 = £48
    Total (absorption) cost per unit = 48 + 45 = £93
    Marginal cost Inventory at end of month 2 (beginning of month 3) = 3,000 x 48 = £144,000
    Absorption cost inventory at end of month 2 (beginning of month 3) = 3,000 x 93 = £279,000

    Month 3:
    Production units = 10,000
    Sales units = 11,000
    Inventory at end of Month 3 = 3,000 (opening) +10,000 - 11,000 = 2,000 units

    Fixed production costs = as before
    Other variable production costs = £250,000
    Production units = 10,000
    Fixed production cost per unit = £45 as before
    Other variable production cost per unit = 250,000/10.000 = £25

    Direct material per unit = £15
    Direct labour per unit = £10
    Variable cost per unit = 25 + 15 + 10 = £50
    Total (absorption) cost per unit = 50 + 45 = £95
    Marginal cost Inventory at end of month 3 = 2,000 x 50 = £100,000
    Marginal cost production cost = 10,000 x 50 = £500,000
    Absorption cost inventory at end of month 2 (beginning of month 3) = 2,000 x 95 = £190,000
    Absorption cost production cost = 10,000 x 95 = £950,000

    Cost of sales = opening inventory + productions costs - closing inventory
    Profit = sales revenue - cost of sales
  • sophie_612sophie_612 LondonRegistered Posts: 131
    @PeterC thank you so much for this, is there an easier way of remembering this at all?
  • PeterCPeterC Registered, Tutor Posts: 218
    You're welcome

    This was a fairly simple process (if you look at it a few lines at a time), there is no special technique.

    The technical knowledge required, to fill in the form provided, was:

    For Month 3:
    opening inventory units: closing inventory for month 2 (value = units x production cost per unit)
    production costs*: material + labour + variable overheads + fixed overheads (absorption)
    closing inventory units: opening inventory + production units - sales units (value = units x production cost per unit)
    cost of sales: opening inventory value + production costs - closing inventory value
    fixed overheads: data provided
    profit/loss: sales revenue - cost of sales - fixed overheads (marginal)

    * for production costs, I calculated cost per unit, then multiplied by the number of units. You can use total costs instead.

    I'm sure you know all this. The secret is to just focus on one bit at a time. For each of the lines above you have to hunt though the question to find the data you need.
    sophie_612
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