Another question from the mock paper which i can鈥檛 seem to grasp. I re-watched the lecture videos and am more confused than ever with the following questions:

Able Ltd is considering a new project, details below:

Initial cost: $300,000 Expected life: 5 years Estimate scrap value: $20,000 Addition revenue from project: $120,000 per year Incremental costs from project: $30,000 per year Cost of Capital: 10%

a) calculate net present value of project Sir how do you did this question step by step

It is the actual sales multiplied by the difference between the actual selling price and the budgeted selling price. 10,500 x (19.50 – 20.00) = 5,250 adverse.

This is all explained in my free lectures on variances.

When Marginal Costing is Used, Fixed Production Costs are treated as Period Costs & Is Not Accounted For in the Production Cost Card, Hence, Avoiding Over/Under Absorption When Using Marginal Costing.

So Why would there be any Variance in Fixed Production Overheads when Marginal Costing is Used? Shouldn’t the Answer to Question 3 be: “True”?

With marginal costing the profit is the contribution less the fixed overheads. If the total fixed overheads are different from the budgeted total then the profit will also be different.

I specifically explain this in the last of the variance lectures.

Sumayasamow says

Another question from the mock paper which i can鈥檛 seem to grasp. I re-watched the lecture videos and am more confused than ever with the following questions:

Able Ltd is considering a new project, details below:

Initial cost: $300,000

Expected life: 5 years

Estimate scrap value: $20,000

Addition revenue from project: $120,000 per year

Incremental costs from project: $30,000 per year

Cost of Capital: 10%

a) calculate net present value of project

Sir how do you did this question step by step

stephine@1997 says

Sir John, for Q1, the sales price variance. Kindly explain, please.

Thanks very much

John Moffat says

It is the actual sales multiplied by the difference between the actual selling price and the budgeted selling price.

10,500 x (19.50 – 20.00) = 5,250 adverse.

This is all explained in my free lectures on variances.

L.Thenuka says

Dear John,

Regarding Q3)

When Marginal Costing is Used, Fixed Production Costs are treated as Period Costs & Is Not Accounted For in the Production Cost Card,

Hence, Avoiding Over/Under Absorption When Using Marginal Costing.

So Why would there be any Variance in Fixed Production Overheads when Marginal Costing is Used?

Shouldn’t the Answer to Question 3 be: “True”?

Thanks!

John Moffat says

With marginal costing the profit is the contribution less the fixed overheads. If the total fixed overheads are different from the budgeted total then the profit will also be different.

I specifically explain this in the last of the variance lectures.

L.Thenuka says

Oh my bad,

Thank You for Recapitulating it! 馃檪

yusra97 says

sir i dont understand question 5 please explain in simple calculation

John Moffat says

The question says that the variance is 2% of budget. Therefore the budget must be 1,250 / 2% = 62,500.

The variance is 1,250 adverse, so the actual fixed overheads are 1,250 less than budget. 62,500 – 1,250 = 61,250.

fekadeselassie says

1250 favorablely ,not adverse

lokeshdh00 says

one few of the chapters in which got 100 % in the test. You taught amazingly. You are a Super Teacher !

mohamed2000 says

can you please give me a more detailed explanation for the last question? I don’t understand it fully.

nikitabhandari78 says

suppose, budgeted fix O/H= 100x

then , actual O/H will be 98x

fix O/H exp = budgeted-actual

1250=100x-98x

x=625

therefore, actual O/H exp=98*625=61250

Musuba says

i think so too

John Moffat says

Good 馃檪