mdcl

I'm in the same boat!!

My teacher advised to ensure I am fully competent with answering standard costing variances questions and also the written questions as then more than half of the exam is covered. I am gong to spend the next 2 weeks going over past papers and revising absorption/marginal/performance indicator/ABC questions.

Make sure you have a good understanding of how the ratio and variance equations work. Not just be able to use them but manipulate them to get different bits of information and how you can use that to work out something else. (e.g getting Revenue by working the gross profit % equation backwards and then using that figure to work out the operating profit %)

On the written still show any calculations that there isn't a separate box for and explain why it's useful. Compare it to what was given and say why it shows something that could be better or worse.

Mannaesi said:

Thanks @Pian32 ,will try to understand them more.

On the written questions i thought i understood them but when it comes to explanation in detail i fail.

like this question,its on bpp aq16 question bank,(pg)228 and i think its the same as sample assement,can you help me with it?

1)Ezo ltd has provided the following management accounting equation pertaining to its operation during prior month.

Standard cost of actual production 600 000
Variances
Material price variance 25000
Material Usage (7000)
Labour rate 10000
Labour efficiency (10000)
Fixed overhead expenditure(7000)
Fixed overhead capacity (5000)
Fixed overhead efficiency (6000)
Actual cost of production 600 000


Recent activities,
Storage facilities:Alternative storage storage facilities were rented at the beginning of last month leading to lower monthly payments.

Machinery:At the beginning of last month,an investment was made in more modern and efficient machinery which has more much higher depreciation charger.

Staff upgrade:Due to the acquation of new machinery at the beginnning of last month,a number of technology engineers were hired to operate the machinery,enabling the business to lay off a number of unskilled workers.


question

1)Write a memo to a collegue explaining the causes of the following variances and explaining how this above recent activities will have affected variance.

a)material price variance(3marks)

b)Labour rate(#3)

c)material usage variance(3)

d)labour efficiency variance(3)

e)fixed overhead expenditure(3)

f)fixed overhead capacity(3)

g)fixed overhead efficiency(3)

Hello,

It took me 4 times to pass this exam. All being a few marks off each time. I personally feel with the written questions there is a method and if you follow the method then you will pass. Written questions need structure to them which is:

Make your point -> Show evidence -> Use examples -> Explain your examples -> Link back to the question.

Material Price variance of 25000 favourable could be: Material cost is less than budgeted due to bulk buying, taking advantage of early settlement discounts, cheaper supplier/ poor budgeting. The new efficient machinery is likely to be upto date and therefore use less material per unit so this saves the company money as they don't have to purchase as much material.

Labour Rate Variance of 1000 favourable could be: Less labour staff due to laying off unskilled workers, which was not budgeted for. This could be incorrect budgeting also by the budget team.

Material Usage Variance of (7000) Adverse could be: The new machinery may result in a high level of wastage therefore they will use less and waste more. This will not have been budgeted for which is why its adverse.

Labour Efficiency Variance of (1000) adverse could be: The labour time to produce each unit has risen so its taking longer amount of time to produce each unit which wasn't budgeted for therefore this is why the variance is adverse.

Fixed overhead expenditure of (7000) adverse: This is due to the new machinery with increased depreciation charge. This will have not been budgeted for.

Fixed overhead efficiency of (6000) adverse: This is due to less units produced than budgeted for. This could be due to the change over in labour workers also the new machinery that could take longer to produce each unit.


When answering each written variance question, begin with stating whether the variance is adverse or favourable. Then define what that adverse/favourable variance is. E.g. A material price variance of £5000 favourable happens when the business spends less money on materials than they budgeted for.

Then go onto to explain reasons why the variances have happened. Use examples and explain the link back to the question (recent activities)

If you can, link each variance together if possible - this gets you more marks!