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  1. Profile photo of AYO says

    Hi, Mr. Moffat. i don’t understand examples four(4) and five(5) of depreciation; sale of non-current assets and revaluation. please, i need a detailed explanation. Thanks.

    • Profile photo of John Moffat says

      I am sorry but I have no idea which examples you are asking about – depreciation has nothing to do with budgeting in Paper F2.

      I suggest that you watch the F3 lectures on deprecation and if you still have problems then ask in the Ask the Tutor forum and not as a comment under a lecture on something completely different.

    • Profile photo of John Moffat says

      The volume variance is the difference between the original budget profit and the flexed budget profit.
      The original budget profit is 120,000. If you flex the budget for sales of 100,000 units, you get a flexed profit of (10,000) (I.e. a loss of 10,000). So the volume variance is 110,000 (adverse)

      The expenditure variance is the difference between the flexed budget profit and the actual profit. The flexed profit is a loss of (10,000); the actual profit is 5,000 and so the variance is 15,000 (favourable).

      (This question is a bit naughty of Kaplan. Firstly because it should really be in the variances section rather than the budget section, and secondly because ‘expenditure’ variance isn’t really the correct name.)

  2. avatar says

    Sir, how to work this out?
    A company manufactures a single product. Budgeted production for the first three months of next year is as follows :
    Month 1 :8k units
    Month 2 : 9k units
    Month 3 : 7k units
    Each unit uses 4kg of raw material costing $5 per kg. The budgeted raw material inventory at the end of each month is to be 20% of the following months production.
    What are the budgeted raw material purchases for month 2 of next year (in $’s)?
    (answer is $172,000)

    • Profile photo of John Moffat says

      Opening inventory for month 2 = 20% x 9,000 = 1,800
      Closing inventory for month 2 = 20% x 7,000 = 1,400
      So production in month 2 = 9,000 + 1,400 – 1,800 = 8,600

      So raw materials = 8,600 x 4 a 5 = $172,000

      • Profile photo of John Moffat says

        We sell 9,000. We start with 1800 in inventory, so that means we only need to produce 9000 – 1800. However we would then end up with no inventory at the end, but we want to have 1400 in inventory, so we need to make an additional 1400.

        Sales units are always equal to opening inventory + production – closing inventory.

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