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?

    • Profile photo 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. Profile photo 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

    • Profile photo 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.

      • Profile photo 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

    • Profile photo 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.
        :)

    • Profile photo 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

    • Profile photo 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.

      • Profile photo 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….?

      • Profile photo 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. Profile photo 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?

    • Profile photo 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).

      • Profile photo 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?

    • Profile photo of John Moffat says

      If you look at the question, it says that the budgeted production was 8700 units and the budgeted sales were 8000 units.

      Since it also says that there is no opening inventory, it rather suggests that the closing inventory is 700 units.

      (I assume that you have downloaded the course notes – as it says everywhere, the lecture is using the course notes.)

  7. Profile photo of chiclarence says

    i think open tuition is the only best thing in life that is free: you guys are doing a marvellous job but i would suggest you try solving exam type questions in your examples because the exams are based on senarios which are sometimes difficult to understand but most of your examples are straight forward

    • Profile photo of John Moffat says

      @chiclarence, I understand your point, but the purpose of these lectures is to teach people the concepts.
      We have uploaded separately lectures that work through past exam questions, and will upload more of these as time permits.

  8. Profile photo of Et says

    Not convinced why fixed overheads of the Flexed budget should not be the same as the Budgeted(The Standard) ?Flexed Budgeting was examined in June2011 Q3 and Fixed cost of the budgeted and the Flexed was the same .Have I missed something here? Is there any one up there to drop me a line of explanation please?

    • Profile photo of John Moffat says

      @Et, If you are asked simply to produce a flexed budget, then certainly it makes sense to keep the fixed costs as per the budget figure.

      However, for variance analysis using absorption costing we are effectively flexing the fixed overheads (as in the example in the lecture).
      The reason is that the sales volume variance is calculated based on the standard profit per unit. Doing this effectively assumes that the fixed overhead per unit flexes (otherwise the standard profit per unit would change). Because of this we also have a volume variance for fixed overheads.
      The flexing in this example is to illustrate what is happening, and why. In a variance question in the exam you will not actually be asked to flex the budget – you will be asked to calculate the variances directly and possibly also produce an operating statement.

      • Profile photo of Et says

        @johnmoffat, My original question was raised in Nov2011. Today 19April 2012 I saw your reply of 15 Feb2012 .As I did not pass F5 last time I still need to know the answer why? Thanks for that.

        John,You also said that” in the exam you will not actually be asked to flex the budget ” What was qustion no 3 of June 2011 asking for 12 marks then? I may not have understand what the question is about ,as always is the case for me when it comes to ACCA papers, but this specifc question was asking to flex the budget. Check it out if you have a chance and prove me wrong.

      • Profile photo of John Moffat says

        @Et, My answer said that in a variance question you will not be asked to flex the budget but to work out the variances directly.

        In the June 11 exam, part (a) of question 3 did ask for a flexed budget, but it was not asking you to calculate the variances. (Parts (b) and (c) asked about variances but were not related directly to the flexing).

        Using absorption costing implicitly flexes the fixed overheads. This is why in Paper F2 there is under or over absorption of fixed overheads, and it is why in Paper F5 that the fixed overheads variances are not just the expenditure variance (as with marginal costing) but also the volume variance (which can be analysed into capacity and efficiency).

        The reason the example in the course notes flexes the budget first is simply to explain the problem and the reason for the extra fixed overheads variances, rather than simply quote rules (even thought the fixed overhead variance ‘rules’ are of course given in the lecture.)

      • Profile photo of Et says

        @johnmoffat, Thank you so much for taking your time .I felt that some one is keeping an eye on us to help us achieve our goal which is so encouraging!

        Opentuition has improved since the last time I used it.Your responses are quick. I wish people are aware how much this means .

        It costs £985 to attend 4 days tuition and 4 days revisoin at Kaplan.It might be more this year I don’t know, I did not pass last time so I am not attending class this time.I am revising useing my notes and OT.

        How much does it costs at OT ? FREEEEEEEEEEEE!!!!!. Listen every body it is FREEEEEEEEE Please be appreciative and tell the wold so that we will get more out of it.

  9. avatar says

    very clear/and easy to understand. however with regard to the explanation as to why the fixed overhead has change when we were doing the flexed buget.I was hoping the he would explain that to us.

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