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ACCA F2 Variance Analysis (part a)
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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.
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.
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
It is because we are using absorption costing.
Using the standard profit to calculate total budget profit is effectively treating the fixed overheads as though they are variable. They are not, of course, which is why we have the fixed overhead volume variance to ‘correct’ for it.
The only reason that I have flexed the overheads as I have is just to be able later to explain why the fixed overhead volume variance exists.
Thank you so much for your reply, you are very kind.
Cheers,
Ali
You are welcome 馃檪
Hi sir
I understand the the first two explanations in your response but unclear with the third. Could clarify that part please.
You say that you understand that for every 90 hours that are worked, the company will have to pay for 100 hours.
So……for every 45 hours worked (half of 90), the company will have to pay for 50 hours (half of 100).
For every 9 hours worked (10% of 90), the company will have to pay for 10 hours (10% of 100)
Hi sir
How did you arrive at the 10 hours for 10% of 100?
You agreed that 90 hours work would need paying for 100 hours.
So…..since 9 hours work is 10% of 90, then they need paying for 10% of 100 (= 10)
Understood. Thanks
Mr Moffat, why did you flex the fixed costs? BPP textbook specifically says that we should not flex fixed costs.
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.
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?
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)
Oh i get it now, thank you very much. It’s very helpful with your lectures, you always explain things so easy 馃檪 You are the Mozart of ACCA 馃槈 thank you!)
Thank you, and you are welcome 馃檪
why arent the videos working ?
They are working, Try a different browser.
its working now..thanks alot 馃榾
for variance revision for p5.i am listening these lecture.am i right
Do you mean P5 or F5?
You will not be asked to calculate variances in Paper P5!
For Paper F5 there are lectures on variances on the F5 pages (and F5 also has the more advanced variances)
This video is not working. how can i get access to it.
The video is working – try another browser.
useful
excellent
馃檪
did’nt the question asked to calculate the total variances
Can anyone plz tell me where is he reading the question from ??
@nidaitrat, from the OpenTuition course notes!
anybody idea abt lecture 18 to onward 21
@umershan, what do u mean? Also on the same topic?
very useful
What have I missed? I understand everything in this video up until the actual costs being calculated. For example, Material production costs are 163,455 according to the video. Yet 8,400 multiplied by 18 is 151,200. This follows for the costs following on from materials also, which video should I watch to understand why the gross figure is 163,455?
Thanks.
@ccoda, Apoligies, I meant 8,900 multiplied by 18, which comes to 160,200. This still does not agree to the lecturers figure though. So a finger in the right direction would be apreciated. Thank you
@ccoda,
this is because for the actual cost column nothing needs to be calculated, just take the actual figures straight from the last part of the question.
Only for the Flexed Budget we still use the budgeted costs of material, labour etc.
Hope that is clear now.
Hungry @ 15:45!
this is very good staf for my revision….thanx
thank you very much sir
i installed flash player then its working fine
this is very very helpful to me
thanks again
i want the supplementry notes on p7
thanks for this, really helpful
this video is not working
and this video is very important could you please see what’s the problem
if you don’t mind sir