PEV HELP

Re:PEV HELP

Understanding variances is so much more important than rote learning formulae.

I have answered this on a previous thread but if you cannot find it on the search (I didn't) then send me an email and I'll try to go through them one by one

sandy.hood@chichester.ac.uk

I'll try to link them to something you do, so if you can say what sort of business you work for I'll try to put them in context...otherwise I will resort to producing sheppherds pies or something simila!!

Re:PEV HELP

In case this is of any help for other forum readers, this is what I put in my email (after making some corrections to spellings etc):


I'll concentrate on Material Variances now.
I'll try to keep the numbers to a minimum and use words more.

I can buy minced beef or minced lamb from a number of supermarkets near me or from butchers.

If you've ever made chilli con carne , shepperds pie or lassagne you will be aware that the amount of the end product will be in part down to the quality of the mince. Cheap mince tends to be fatty and you have to pour off the fat before you make the product, top quality mince hardly needs any fat to be poured off.

I had to make 100 ready meals (Individual chilli con carne portions). I made them all.

The standard cost card shows

Each portion should use 80 grammes of mince and mince should cost £3.00 per kilogramme

I actually used 6.5 kilogrammes of mince to make the 100 ready meals and paid £26.00

Look at the variances

100 meals x 80 grammes should use 8 kilogrammes (8,000 grammes)
but we only used 6.5 kilogrammes
so we managed to make our meals with less raw material than the standard would expect - 1.5 kilogrammes less
this is a material usage variance of £3.00 per kg x 1.5 kg = £4.50 favourable

Also
6.5 kgs at a standard price of £3.00 per kg would cost £19.50
but we paid £26.00
we paid more than standard for the materials we bought - £6.50 more (an adverse material price variance)

We may wish to investigate these variances - possibly to see whether we actually bought the right sort of mince. It could be that the favourable usage variance and the adverse price variance are due to better quality mince being bought and used compared to the quality used in the standard cost card.

_____________________________________________________
Overheads are best thought about in terms of time

The volume variance is the difference in the actual number of units produced (volume of output) and the budgeted number of units
if you multiply units by standard hours per unit this is converted into time:
Budgeted Hours v Standard Hours produced
and then
multipy the difference by the overhead absorption rate you get the overhead volume variance

The capacity variance is just time
Did we actually work more hours or fewer hours than budget?
If we had more, then the ability to produce more units (our capacity) was more than the budget so the variance is favourable

If we had fewer, then we had less capacity so the variance would be adverse
don't worry about how well we used the time - that is efficiency

The efficiency variance is how well we used the time
We work out the standard hours for actual production (as above: you multiply units by standard hours per unit) then
look at the actual hours worked
Find the difference and multiply by the overhead absorption rate to find the efficiency variance
If we took More time than standard the variance is adverse (I think you'd expect that)
If it took Less time than standard the variance is favourable (I think you'd expect that)

Re:PEV HELP

I hope this thread helps current students preparing for PEV

Re:PEV HELP

I recall both Cliff Floyd (PEV and MAC chief examiner) and Alan Cull (PCR examiner) both speaking to lecturers just over a year ago at the AAT Lecturers' Conference.

They were both very much aware of the similarity of exam papers over time and were both concerned that students need to understand the content of the standards not simply repeat a technique that has been tested in the past.

With that in mind, I am expecting to see questions requiring wordy answers. I don't think either examiner will try to trip you up in a devious way but I wouldn't be surprised if students relying on presenting rote learnt standard answers find this June's exams tricky.

Look at (a pre-Cliff Floyd PEV paper 2.1 g on Nov 29th 2004)
Here there is a question that I think a production supervisor could figure out by just applying a little thought, but if you look back over this forum you might be surprised how many AAT students have struggled with it.

Duo Ltd owns two factories, A and B, which make and sell furniture to customers’ orders. Each
factory has its own general manager who is responsible for sales policy, pricing and purchasing.
The forecasts for both factories for the year ending 31 December 2005 are shown below.

Budgeted labour hours
Factory A 75,000
Factory B 85,000

Factory A has a capacity of 70,000 labour hours and Factory B 140,000 labour hours.

Task 2.1
Using the forecast financial information, calculate the following performance indicators, to
one decimal place, for both factories:
(a) gross profit margin
(b) operating profit margin
(c) return on capital employed
(d) stock turnover in months. Note that stock value is based on materials cost only.
(e) age of creditors in months
(f) age of debtors in months
(g) labour capacity ratio.

A robot can churn out in monotone

Capacity Ratio is Actual Hours Worked divided by Budgeted Hours

So there were students who should have known better hunting around the FORECAST data looking for actual hours.
If you are really looking at becoming an accounting technician, you need to think and need to apply the knowledge your lecturers have helped you to gain. The examiner will find scenarios where you can apply that knowledge. So things that don't automatically fit some rote learning are very much on the agenda.

Understanding the subject really requires you to think about it. I think this is important, and I am expecting the exams this June to require this from you, rather than learning words made up of the first letters of key factors or other formulae.

sandy.hood@chichester.ac.uk