# 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  • 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
• @PeterC thank you so much for this, is there an easier way of remembering this at all?
• 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