Flexing budgets

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
OK, I know I'm leaving it a bit late in the day to be panicking about this, but hopefully someone can clear this up for me once and for all. :shock:

Last night when asking my tutor I was told always flex you expenditure to the actual production. Then calculate your closing stock on your variable costs for marginal costing and on all expenses for absorption costing. Or at least thats how I understood what she said. :?:

I put this to practise on the Dec 05 paper, totally didn't work. It's a marginal costing question and in the answers they flexed the budget to the actual sales and did not need to include any stock. Fair enough, I thought you could do it either way for marginal costing. But my answer is way way wrong. So can anybody clarify it for me? :D

Many thanks

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Flexing budgets

    You can do this by adjusting the costs of production, by the percentage of closing stock to the total cost of production

    However

    I find it easier, when converting to a marginal statement, to calculate the variable costs as follows.

    (You will be asked to work out actual costs of production by cost type)

    Turnover - actual sales x actual selling price
    Costs - Actual Sales x cost element (per unit)

    This effectively eliminates the costs that are being carried forward into the next period (your closing stock value)

    Anyone has any comments on this method, please forward them.

    Paul.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Flexing budgets

    It certainly makes life easier to do it that way, but my tutor told me not to get into the habit of this because you can't get away with it on absorption costing. Is that true?

    P.S. thanks for responding so quickly. x
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Flexing budgets

    Well yeah that is true, but thats nothing to do with the task we are on about, we are talking about going from absorption to marginal.

    Paul

    Good luck for tomorrow! Ill be glad to have it done now!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Flexing budgets

    Good luck to you too, although sounds like you know your stuff!

    Looking at past papers looks like the December paper is always a nasty! eeek!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Flexing budgets

    Sure you will be fine, any other problems, pm me or email me (its also good for my revision)

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