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# Financial Performance sample assessment 1 questions 4 and 8

Registered Posts: 3
Thanks for the assistance with my other assessment query. I have two more from this other paper.

Question 4 - according to the answers the fixed overhead volume variance is n/a but I calculate it as 22645.16 adverse (which is the only other drop down answer)?

Question 8 e) - the answer is Yes - Because the additional cost per kg is less than the contribution per kg. How is this worked out?

Thank you again!

• Registered Posts: 6
Randumb said:

Question 4 - according to the answers the fixed overhead volume variance is n/a but I calculate it as 22645.16 adverse (which is the only other drop down answer)?

Hi there, I too am wondering about this. Would appreciate it if you could let me know if you work this one out.
• Font Of All Knowledge Registered, Moderator Posts: 2,034
I'd be happy to give a more certain answer if you could show me the question. I don't have access to the sample exams.
You can email me a screenshot (my email address is at the end of this response)
But I may be able to help even without having a look.
Does this question state that the company uses standard marginal costing? If so no overhead is absorbed into units produced. Thus no volume variance can be calculated.
[email protected]
Sandy
[email protected]
www.sandyhood.com
• Font Of All Knowledge Registered, Moderator Posts: 2,034
I replied to someone else who was asking about Tig and Tag over a year ago
http://forums.aat.org.uk/discussion/438893/contribution-question-help

8 e) States that Alpha can buy up to 500kg from a different supplier but that these cost £500 per kilogram.
Without any kgs from this supplier we only have 3,000kgs and this is limiting our production.
We can make and sell all the Tigs that we can sell (200 units) but we can only make and sell 240 Tags even though we know that the demand is for 300 Tags.

Each Tag needs 7.5kgs, so (if the price was right) we'd be prepared to buy enough kgs to make 60 Tags. 7.5kgs x 60 = 450 kgs

What is the highest price we would be prepared to pay?
Each Tag uses 7.5kgs and is currently generating £1,350 contribution
This means that so long as any extra kgs came in batches which are divisible by 7.5 we can increase our total contribution above the £564,000 we got in task d.
This will work only if the cost of each extra kilogram has a premium (over the current £400 per kilogram) which is less than £180.

At £500 per kilogram the other supplier are charging £100 more than our current price. We could go to almost £180 over the £400 and still be making extra contribution. This makes buying the extra kilograms for £500 worthwhile.

The question doesn't ask how much you should buy but we can look at that here.
We have identified that the extra kilograms are only worth buying if we can buy them in batches divisible by 7.5 because unless we can make extra Tags it isn't worth having. (and each Tag needs 7.5 kgs)
We also know that the demand that isn't being satisfied at the moment will only increase sales by 60 Tags.
So its worth buying 450 kgs at £500 per kg.

For the extra 60 Tags we will sell we will make an extra contribution of £36,000.00

Contribution/unit £1,350 (reduced by 7.5 kgs costing £100 per kg more) = £600/unit
x 60 extra units
=£36,000 extra contribution (and profit)

You can get the same answer in a longer way.

Sandy
[email protected]
www.sandyhood.com
http://www.ebay.ie/itm/Management-and-Cost-Accounting-For-Dummies-Paperback-9781118650493-Holtzman-/391188384046

Sandy
[email protected]
www.sandyhood.com