Comments

  1. avatar says

    Hi,

    I’m not sure if I read it somewhere or heard it in one of the lectures on OT. Is it true that we won’t be tested on basic variances but only on Mix & Yield or Planning & Operational Variances in 2014?

    • Avatar of John Moffat says

      There will not be a full question on basic variances, but they can certainly be tested as part of a question.
      Also, understanding basic variances is essential to be able to deal with planning and operational variances.

  2. Avatar of Yasen says

    Hi,
    In this lecture is stated, that Fixed O/H in Fixed budged change in Flexed budget at actual prodecued units @ std costs.
    But,
    In “Budgeting” lecture is stated that Fixed overheads remain unchanged when preparing flexed budged.

    It is the same thing I think, why there are different aaproaches?

    Thank you,
    regards,
    Yasen

    • Avatar of John Moffat says

      This is explained in the lecture if you listen all the way through.

      Fixed overheads in total certainly do not change with the level of production.

      However, if we are using absorption costing and doing variance analysis, then simply assuming the the actual profit should be the actual sales units x the standard profit per unit, is implicitly treating the fixed overheads as though they were variable.
      This is not the case and this is why we have the fixed overhead volume variance appearing later.

      The reason I produced a full flexed budget was so that later the reason for fixed overheads volume variance would be clear.

      • Avatar of Yasen says

        Thanks,
        I think I understand,

        but when we were budgeting with you in “Budgeting” lecture, the purpose of preparing flexed budget was to compare the figures with actual budget and then define the variances. Absorption costing was involved too. But then we did not adobt fixed costs as variable costs for variance defining purposes.

        I totally accept the way, I just want to clear it for myself :)

        Thanks again!
        regards,
        Yasen

  3. avatar says

    Hi John, question 10 Zatler, material price variance:
    X actual quantity X actual price =1,256,640 understand
    actual quantity X standard price =1,207,360 don’t understand, where is the figure from?
    actual quantity 15400 X standard price 6kilo X $12.25=15400 x 73.50=1, 131,900, not 1,207,360
    Similarly, material Y price variance, actual quantity X standard price should be =154000 x 3kilo x $3.20=154000 x 9.6=147,840.

    Which part am I wrong? Thanks

    • Avatar of John Moffat says

      For the price variance we are seeing if we paid the correct price per kilo or not.

      The actual purchases were 98560 kg. We actually paid 1256640, but we should have paid 12.25 per kg.
      So for the actual quantity purchased, we should have paid 98560 kg x $12.25 per kg.

      The same logic applies to the price variance for material Y.

      For the price variance, it is irrelevant whether we used more or less material than we should have done – all we are looking at is whether we paid the correct price per kg for what we bought, or not.

      • avatar says

        thank you so much. however, I think there is arithmetic mistake for adding up all adverse variances, should be 204,236 (A)- 14,861(F)=189,375(A), original budget profit 219200-189375=29825.
        :)

    • Avatar of John Moffat says

      By all means, and even simpler is just to multiply the budgeted sales by the standard profit in order to get the budget profit!!!

      However, you will not be asked to produce the fixed budget (or the flexed budget) – the reason I have done it in the lecture is to make it clear what the variances are actually calculating – the difference between the actual figures and the flexed figures – i.e. the standard costs for the actual production (not the standard costs for number sold).

  4. avatar says

    Eventually i dont heard on this lecture why you compute variance of fixed overheads, i thought that they are fixed even if we sell more units, and we just appotrtion them on more units. Could you explain? Thank you

    • Avatar of John Moffat says

      The lecture does explain.

      Fixed overheads should indeed be fixed, but if we are using absorption costing then we are charging fixed overheads on a unit basis. Using standard profit per unit is automatically treating fixed overheads on a unit basis, and so because they do not in fact change with the number of units this is why we have the fixed overhead volume variance.

      • Avatar of Chris says

        It does make me chuckle when you have to repeat yourself more than once.

        Absorbtion costing includes fixed overhears.

        Marginal costing doesn’t include fixed overheads.

        Therefore, the level of fixed overheads in this example does change due to it being absorbed in the cost card.

        Am i correct? Hopefully, because that was my understanding.

        Obviously, in the example, if it were to be marginal. You would have contribution listed out….?

      • Avatar of John Moffat says

        With absorption costing, the amount charges in the profit statement does change (because it is charged on a per unit basis).

        However, since the actual total fixed overheads does not change with production, we then need the adjustment for over or under absorption of fixed overheads.

  5. Avatar of Mahoysam says

    Are basic variances really removed as adnanaadi101 is saying? I get the logic that we have to understand the basics in order to get the advanced but I was hopping to get some question about basic variances because they are easy.. Also I am surprised to learn that they are removed given that there is a whole section in my revision kit for basic variances question, why would they put it if they are removed, can anyone confirm please?

    ..and if they are removed, are we still be required to produce an operating statement?

    • Avatar of John Moffat says

      They are still examinable as assumed knowledge from Paper F2.

      You will not be asked a full operating statement, but you can be asked any of the individual variances as part of a question (also you need to understand basic variances to be able to calculate planning and operational variances).

      • Avatar of Mahoysam says

        Thanks a lot for the clarification! I am hoping we will get some question on basic variances, they are very easy specially that we took them already back in F2.

  6. avatar says

    Hi team is it possible for me to watch lectures via mobile? I can see the first two seconds of the video on my phone but it doesn’t continue thereafter.

    Please let me know if the lectures are only viewable from a computer or tablet?

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