Forum Replies Created
- Posts
Therefore, for the first question the order would be to begin first with the cost centre with largest overheads right?
For the second qn, the problem is not about why is there going to be an under-absorption. The confusion I had was relating to why the actual hours would be LESS than the budget, as stated in the answer, for there to be an under-absorption. Please explain how exactly.
I apologise for the late response, I’m looking forward to your explanation
From the first question, (the correct answers are the 2nd and 3rd statement) I don’t understand what does it mean by the 4th statement (the ORDER in which service cost centre overheads are reapportioned, i.e do we first begin with the service cost centre with a greater amount of overhead?)
And from the second question, the correct answer is, “Actual direct labour hours were 800 less than budgeted” but I don’t understand how that would indicate an under absorption as shown by the entries in the production overheads account. If actual hours are less than budget, isn’t that going to result into an over-absorption? (Actual overheads would be lower than the absorbed overheads)
Please help me understand the above more clearly, I will really appreciate your explanation
Ok.
In the case of the qn I posted above, does this mean that if overheads were NOT over-absorbed (maybe because the actual units produced were the same as budget…) then there would not be any difference between the overhead absorbed and the overhead budgeted therefore the favorable volume variance wouldn’t be there?
Please help me confirm that. The qn was confusing because it seemed that the over-/under-absorption of overheads would be what causes the fixed overhead total variance and not the volume variance
Hello
The above question is from the BPP revision kit in the section of multi task qns. If we check the answer to this particular task, it says that that the fixed overhead volume variance (which is favorable) can be caused by an over-absorption of overheads.Can you explain how? Because it calculates the difference between absorbed overheads and budgeted overheads (and not the actual overheads).
Looking forward to your response, thank you
Oh, so there is a difference between when we are given the average spend for an item (a measure of efficiency-the total budget being the resource in this case and the specific item for which the budget is utilised being the output) and the cost per resource bought (a measure of economy)? Please correct me if I am wrong.
And thank you very much for such a detailed and clear explanation. I appreciate them a lot.
Yes. And you did not explain to me the first 2 questions I typed in my previous response. They are very specific, that is why I asked for an explanation from you (the lectures don’t give an explanation specific to my doubt)
They do clearly explain the concept, but the problem is applying them in the qn above
Looking forward to your explanation, thank you
Ok, but efficiency links inputs (resources) to output generated. So in this case, where is the output? (we are only comparing the money spent on resources here)
And wouldn’t the hospital have a lower cost per OUTPUT if it is performing more efficiently rather than a lower cost per input (the beds)?
I still did not understand how is it exactly a measure of efficiency, please help me understand the meaning of efficiency more clearly
Thank you
Ok I got it, it’s just that with what was explained in the study text (Kaplan) about the formulae used for calculating the expenditure variance, the way in which the question was answered was not clear. Thank you very much
Sure I will try to check out your lecture
Ok, what you explained above applies only to variable overhead expenditure variance right?
Because in the question I posted previously, for fixed overheads they were looking at whether or not we paid more or less than the standard cost for BUDGETED units (not the actual as it was for variable overheads)
Please re check that and kindly help me understand the reason for the difference in the 2 calculations
Solution:
Expenditure variance:
Monthly budgeted production (10,800/12) = 900 units
Monthly budgeted expenditure
(Flexed budget)Fixed costs (900 × $4)
Variable costs (800 × $6)
Total expected expenditure 8,400
Actual expenditure 8,500
––––––
Expenditure variance
100 (A)
––––––
Volume variance:This only applies to fixed overhead costs:
.
Volume variance in units (900 – 800) 100 units (A)
Standard fixed overhead cost per unit $4Fixed overhead volume variance 100 units x $4
$400 (A)Why is an expenditure variance even calculated for variable overheads when what was explained in the study text about it was quite different. I will really appreciate your explanation for that part
Thank you in advance
Oh. So the reason for dividing an annual interest rate over the number of quarters or months is to calculate the initial quarterly or monthly interest rate that will be compounded overtime right?
Which means in the case of, eg, bank account 3 and 4 we were already given that initial interest rate so we did not have to divided it by anything.
Please correct me if I am wrong, I would really like to understand what the formula means
Ok, I am talking about the following 2 questions:
1) What is the effective annual rate of interest of 2.1% compounded every three months?
A.6.43%
B. 8.40%
C.8.67%
D. 10.87%The answer is C using the formula (1+i)^n -1
2) A bank offers different bank accounts with different interest rates:
Bank account 1 = 10% interest per year, interest calculated quarterly
Bank account 2 = 12% interest per year, interest calculated monthly
Bank account 3 = 1.2% interest per month
Bank account 4 = 3% interest per quarter
Which account gives the highest annual effective interest rate?A1
B2
C3
D4The answer is C. The formula (1+i/n)^n-1 was used for bank account 1 and 2 which is not an issue because that was the formula stated in the study text. My confusion is with bank account 3 and 4 where the other different formula ((1+i)^n -1) had been used.
Can you please explain why a different formula had been used for the above? Isn’t there supposed to be a single formula used to calculate all effective interest rates?
Thanks
Ok, I understand now. Thank you very much for your time and advice, I appreciate it
Ok, so does that mean we can transfer on to the ACCA qualification from FIA if we only cover FBT, FMA and FFA? Because the progress for FIA students on their acca account shows that there are 9 exams to complete…
I have only done GCSEs so I don’t really understand the need to do the introductory level.
And thank you very much for sharing the websites
Yes, I agree. Therfore, the correct formula is supposed to be long term debt/equity times 100?
And sometimes, we could use capital employed if the qn tells us to put it as a denominator, right?
“When you are asked to calculate a gearing ratio, you ought to be given information about the basis on which the ratio is calculated, because there are different ways of measuring gearing. In particular, gearing might be measured as the percentage ratio of long-term debt to total share capital and reserves. Alternatively, gearing could be measured as the percentage ratio of (long-term debt plus some short-term loans) to share capital and reserves.
In this question, the problem is deciding what to do about the short-term borrowings of $50,000, which the enterprise has apparently had the benefit of for only the second half of the year.
(1) If gearing is measured as long-term debt to share capital and reserves, the ratio would be (75/500) × 100% = 15%. This is not an option in the question.
(2) If gearing is measured as (long-term debt plus short-term borrowings) to share capital and reserves, the ratio would be ((75 + 50)/500) × 100% = 25%. This is not an option in the question.
(3) It might be assumed that since the short-term borrowings have only been in place for one half of the year, just one half of it ($25,000) should be included in debt, together with the long-term debt of $75,000. This would give a gearing percentage of ((75 + (1/2 × 50))/500) × 100% = 20%. This is an option in the question.Although it is possibly not the best way of measuring gearing, it is the most plausible of the four available answers.”
(This is what was explained, although don’t you think it is not usual for such a method to be used?)
Yes, I agree with you. We normally use only long term debt and equity.
It is not possible for me to communicate with my lecturer sooner but I could post the explanation given within the resource pack…
Thank you for your explanation. I found both questions from the Kaplan lecturer resource pack. I also did not understand why they took short term borrowings and then time apportioned it. So, does it mean that option C for the second qn is not the correct answer?
2.The draft statement of financial position of D Co at 31 March 20X3 shows the following
Non-current assets450
Current assets
Inventory65
Receivables110
Prepayments 30
Total assets655Capital and reserves
Issued capital400
Retained earnings100
Total equity 500Non-current liabilities
Loan75Current liabilities
Payables30
Short-term borrowings (note 1)50
Total liabilities 155Note 1: The short-term borrowings were raised on 30 September 20X2.
What is the gearing ratio of D Co?
A13 per cent
B16 per cent
C20 per cent
D24 per cent(In this qn, please explain me how the answer is C?. The workings show that we take the the short term borrowings (6/12×50) plus non current liabilities divided by equity. Why do we include short-term debt??)