Comments

  1. Profile photo of Chris says

    Hi John,

    with the flexing of the budget. Are fixed overheads always left as per the original budget or only in this instance as they wanted us to produce it based on a marginal costing approach? Just simply for clarification.

    Thank you.

    Chris.

    • Profile photo of John Moffat says

      Yes – fixed overheads stay fixed.

      (Just so you don’t get confused later, when I go through basis (F2) variance analysis in a later chapter, I do flex fixed overheads because as you will see, I am trying to explain the logic of what we need to do when there is absorption costing.
      However, if you are just asked to flex a budget (forgetting variances) then you do keep fixed overheads fixed and only flex the sales and the variable costs.)

  2. avatar says

    When preparing a flexed budget we adjust it according to the actual activity level & the reason is because we are using it for control purposes. Do we not need to adjust the budget for factors other than the activity level, such as inflation & government policies. Eg : if we budgeted on 5% inflation, but actually it was 10%, even if the activity level is the same material costs will be higher. This increased cost would be beyond the control of manager so his performance shouldn’t be evaluated on that basis, right?

    • Profile photo of John Moffat says

      Budgets are often adjusted for all the factors you have listed.

      However a flexed budget is specifically adjusting just for the level of activity.

      (You will see when you get to variance analysis proper how we can separate factors over which the operational manager has control from other factors.)

  3. avatar says

    Dear Sir

    I just have quick question that stems from an example question I encountered on budgeting in the Kaplan exam kit.

    The question is in three parts: a (5 marks), b (10 marks) and c (5 marks) and is purely written. I understand that it may not be completely representative of an exam question, but, in answering such a question, if I put down some points in a seemingly sensible attempt to answer say part a, but the actual answer in the back of the book includes those points for part of the answer to say part b, would the examiner still give me the marks for those points?

    Cheers

    A

    PS Hope that makes some kind of sense.

    • Profile photo of John Moffat says

      You might get some credit, but only some.

      (a) and (b) would have been asking for different things and so given answers to (b) as part of the answer to (a) would suggest that you had misunderstood what was being asked.

  4. avatar says

    Hi Sir, for the example 2 in this lecture, we used a marginal costing approach, in the exam should we expect the examiner to ask use to use an absorption costing approach as well? Thanks and needless to say awesome lecture :D

  5. avatar says

    Hi John, I have 2 questions about pratice question 9 Judi:
    1. I don’t understand what does it mean by skilled worker turnover is non-existent and semi-skilled worker turnover rate is quite high. Do you mean that skilled workers are pernament staff and the company has to pay whatever they have job to do or not, and semi-skilled workers are changing from time to time?
    2. in the answer notes, variable overheads: I don’t understand where is this from : 5hr/batch @ $4/hr=320

    Thank you very much!

    • Profile photo of John Moffat says

      The relevance of the turnover of the workers is that because the skilled workers are not leaving and being replaced, they will learn and the learning effect will apply to their time.
      However, since the semi-skilled workers keep leaving and then being replaced, we assume that they are not there long enough to learn and so their time per unit will stay unchanged.

      With regard to the variable overheads, since the semi-skilled workers are not getting faster – their time stays at 5 hours a batch. The overheads for that part of labour will be 16 batches x 5 hours a batch x $4 per hour.
      (Sorry – the figure is correct, but the workings could have been typed better!)

  6. avatar says

    Hi … why we didnt copy the direct figures of costs given for actual production of 12000 units i.e labour cost in question is 28500 and we took 30000…why not the sameee 28500?

    • Profile photo of John Moffat says

      Did you watch the whole lecture?

      Because we did copy the actual costs (28500 etc) in the ‘actual’ column!!!

      The flexed budget was rewriting the original budget for the actual level of production and sales, so that we had something sensible to compare the actual costs with in order to check whether we were over or under spending.

      • avatar says

        yeah! sorry! i got confused at flexed budget and paused the lecture to ask my doubt but as soon as i continued i almost understood there was actual budget for that but thanks alot for making things clear about flexed budget :D

  7. avatar says

    Hello John, I have a question about practice question 7 light plc (d) material purchase budgets: as we have calculated the production budget on (b) which are 900, 2000 and 450 respectively, certainly we should purchase the material based on the production: plastic usage 19650m+20%closing inventory 3930m.
    I don’t understand the answer in the notes, why do you go back to calculate the purchase based on sale volume again, not actual production volume? Thank you.

    • Profile photo of John Moffat says

      The purchases have not been based on the sales volume.
      Only the closing inventory has been based on the sales because the question says that we wish to have enough inventory of raw materials to be able to copy with 20% of the demand (the sales demand).
      So……the inventory has been calculated as being enough to cope with 20% of sales.
      Then the usage has been adjusted for the inventory in order to arrive at the purchases.

  8. Profile photo of mario123 says

    Sir. Two topics: Methods of budgeting (incremental & zero-based) and behavioral aspects of budgeting (participation + target setting & motivation + responsibility accounting + management by objectives) are covered in the notes but not talked about in the lecture. What kind of questions are expected for these topics? I’m sure they must be part of syllabus..

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