PCR - FLEXIBLE BUDGET - JUNE 2005

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I am confused as to how to know when i should prepare a budget based upon absorption costing or marginal costing if it doesnt specify.

I know how to deal with Marginal(exclude fixed costs) and absorption but this particular paper threw me slighty:

It mentions several costs are marginal so my first thought was to prepare the flexed budger under marginal principals but i notice they included fixed costs so they treated as absorption costing.

How can i be sure which method to use if it doesnt say? How do you draw the conclusion that this paper requires an absorption costing method?

I assumed its becuase they did so in the question but in Dec 2005 they wanted it changed from Absorption to Marginal.

Also why do they mention car makers need 420,000 - i didnt use this for anything?

Sorry to waffle on - please can someone advise me?

Thank you

Summer :wink:

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR - FLEXIBLE BUDGET - JUNE 2005

    Present it in a way that lets you show the variances

    If the actual results are not broken down into fixed and variable for semivariable costs such as electricity then present the flexed budget in the same way (find the variable and fixed parts of semivariable costs and add them together)
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR - FLEXIBLE BUDGET - JUNE 2005

    Hi Summer

    I guess the only answer to your question of "how to know when to prepare a budget basedon TAC or MC" would be: Don't assume it's either or! Unless they specify what sort of budget they want to see, I would include the whole thing i.e Absorption costing.

    I can appreciate you're probably worried that they might not see that you understand the question by including the whole thing, but unless they actually specify something, I would include it all.

    With regards to the need of 420,000 units - at the top of the page, it states that demand is assumed to be 300,000 or 400,000 units. However, as you can see from the notes at the bottom of the page, 420,000 were needed, but I would assume from that, that Car Makers only confirmed demand following production of the 380,000 units - I hope this makes sense?

    Good luck!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR - FLEXIBLE BUDGET - JUNE 2005

    Thank you,

    Thats helpful,

    I shall move on and try a few more papers.

    I may try some time series analysis as that does not semm to have come up much!...

    Summer :thumbup:

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