Need help on operating statements please
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Can someone please explain to me why in the past paper June 2004, task 2.1
when you prepare a revised operating statement you only use 8800 units(sales) and not 10000 units (production) to calculate the variable costs
Thank you
when you prepare a revised operating statement you only use 8800 units(sales) and not 10000 units (production) to calculate the variable costs
Thank you
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Comments
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Re:Need help on operating statements please
If you want the cost of sales you should only use the variable costs of what you sold.
The flexed budget that will be used for comparison purposes will be exactly the same basis
Only by having both constructed on the basis of cost of what was sold can you produce meaningful variances
By all means work out the value of the change in stocks, but keep that for an explanation of why the profit given (using absorption costing) differs from yours.0 -
Re:Need help on operating statements please
Why then are the actual figures - for the operating statement in the question - presented on an unflexed basis?
In the question the actual variable costs in the operating statement are presented unflexed (ie 10000 volume) and then an adjustment made for closing stocks. It is therefore, in my opinion, not unreasonable to present your answer this way. You would I suppose have to present the flexed budget in the same way and show a closing stock adjustment.
At the end of the day it seems more logical to exclude closing stock and work on a purely flexed basis. The annoying thing is the answers in the textbooks do not always do this.
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