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    • Avatar of johnmoffat says

      We are not preparing financial accounts – then we may well value inventory differently.
      With management accounting when we are usually preparing statements every month, we keep the inventory value constant at what we expect for the year. Some months the actual costs may be higher than they should be and some months lower, but it would be silly if we were changing inventory values every month.

      • avatar says

        I understand Sir but I want to know it won’t affect the annual result. is the fianacial account consider this resultat at the end of the year? sorry if I don’t understand. Im new.

    • Avatar of johnmoffat says

      It would have been better to post this in the F8 forum.

      Obviously, since all papers from F4 to F9 (except F6) will have MCQ’s in December, we will as always be updating after the June exams by including MCQ’s.

      Most people are studying at the moment for June exams, MCQs are not relevant for them.

      If you are studying for December, then obviously the existing note and lectures are relevant because the syllabuses are not changing.

  1. avatar says

    Dear Sir,
    Thanks for your great lecture first!
    While I am still not so clear why you mention : sales/8000 * standard profit/7 . What’s the purpose of this point?

      • avatar says

        Yeah I know the whole point of variance analysis, and budget profit per unit is 7$, budget sales is 8000 units, so budget profit is 56000, no problem. But my problem is sales/ 8000 *standard profit/7 , what’s standard profit here ? Isn’t it the budget profit?

      • avatar says

        Dear Sir,
        Simply say how you get the budget profit 56000 from sales/8000*standard profit/7 ? Suppose we can get 56000 from that, then the standard profit is nearly 5227. Where am I wrong? I am very confuse about this now. Thank you very much for your answer!:)

      • Avatar of johnmoffat says

        Standard costs and standard profit are the budgeted costs and the budgeted profit.
        So….if we budget on selling 8000 units and we budget on making a profit of $7 a unit, then the budget profit is 56000.

        I do not know where you get 5227 from!

  2. avatar says

    Hi John. Brilliant lecture as always. Just wanted to clarify a point (from reading some of the other comments below). The fixed costs are only flexed when using absorption costing, and are not flexed when using marginal costing (since the fixed cost comes right near the end). Would we be safe to assume that we should use absorption costing if neither it or marginal costing is specified? Also, if we are given a $/unit rate for Fixed O/H, and we are required to use marginal costing, can we find the total fixed o/h based on budgeted production and use that in the flexed budget? Would that be correct? Thank you so much!

    • Avatar of johnmoffat says

      If you are just asked to flex a budget then you should use marginal costing always (and fixed overheads do not change).

      The reason that I have flexed the fixed overheads here is because we are doing variance analysis and it is to try and explain why the fixed overhead variances are rather odd when it is absorption costing.

      You will not be required to do the flexing, and you can simply learn the rules for the fixed overhead variances, but it is important to have some understanding of why the rules are what they are.

      With regard to the second part of your question, what you say is correct – you do calculate the the total fixed overheads using the budgeted production.

  3. avatar says

    Could you just verify if my interpretation was correct in this question
    The question states:

    The standard direct material cost per unit for a product is calculated as follows:
    10.5 litres at $2.50

    Last month the actual price paid for 12000 litres of material used was 4% above standard and the direct material usage variance was$1815 favourable. No stocks of material are held.

    What was the adverse direct material price variance for the last month?

    In the answer from the question bank test it shows
    12 000 litres * $2.50 = $30 000
    Std cost (12 000 * $2.50 * 1.04)= 31 200
    Direct Mat. price variance 1200 A

    My question is, the 1.04 in the workings for the standard cost is it representing the 4% as 104/100 being equal to 1.04.

  4. avatar says

    Hi

    How do you determine the format of using percentage in a question. For example in some questions you see where like the format used is 115/100 or 100/85 or as is as 15/100.

    This question i was doing from a question bank for the F2 exam stated:
    A unit of product L requires 9 active labour hours for completion. The performance standard for product L allows for ten percent of total time to be idle, due to machine downtime. The standard wage rate is $9 per hour. What is the standard labour cost per unit of L.

    The answer read
    9 hours * 100/90 * $9 = $90.

    I find it a bit confusing at times.

    • Avatar of johnmoffat says

      The idle time is always a percent of the total time paid.
      So….for every 100 hours that are paid, 10 will be idle and therefore 90 will be actually working.

      So…..putting it the other way, it means that for every 90 hours worked, it they will have to pay for 100 hours.

      If therefore the product needs 9 working hours, then they will have to pay for 10 hours.

  5. avatar says

    Hi Sir John,
    I don’t understand one thing, it says fixed costs should not vary with the production, then why on earth we are calculating it based on number of units produced? I am referring to example where fixed cost value is 130500($15 x 8700).
    Thanks a million.
    Ali

    • Avatar of johnmoffat says

      It depends whether you are using absorption or marginal costing.

      Usually we do not flex fixed costs, but if you listen carefully the reason was to explain why the fixed overhead variances are what they are when we are using absorption costing.

      • avatar says

        Yes, it makes perfect sense to me. But in BPP text they don’t specify when to flex and when not to, they just say “don’t fall into trap of flexing fixed costs” literally. Did they make a mistake? I mean if i’m faced with this issue on the exam, what to do?

      • Avatar of johnmoffat says

        If you are asked to produce a flexed budget you do not flex fixed costs.

        However, as I wrote before, if you are asked for the total fixed overhead variance and it is absorption costing then you are effectively flexing the fixed costs (you can simply learn a rule, but it is better to understand what you are doing and why)

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