[maria2020]

Thanks 🙂

I would also like to ask two questions here:

1) The value of inventory consists of all the production cost like material cost, labour cost and production overheads.

So I wanted to know do the opening and closing inventories also comprise of these same production costs?

2) Secondly, where thr inventory accounts like raw material, Work in process and finished goods are used?

Please explain how our production costs are involved in these account? I need to know the cost breakdown in these accounts.

Thanks again.

[maria2020]

In FIFO, we have total cost of:

Material = $24900
Labour+OH = $20075
Total cost = $44975

AND we have total value of:

WIP (opening) = $15200
Finished Goods this month = $34500
WIP (ending) = $5525
Total value = $55225

Please tell me do we need to equal our total cost of $44975 and total value of $55225 or not?

I have seen that people add WIP (opening) of $10250 in the total cost of $44975 in order to equal them to our total value of $55225 which you did not do in your lecture like this:

WIP (opening) = $10250
Material = $24900
Labour+OH = $20075
Total cost = $55225

Can we do this if it is not wrong to do?

[maria2020]

I saw your lecture actually BUT i have this confusion.

In short, under weighted avg we have total cost of $55225 and total evaluation value to $55225 are equal because the total of the amount already spent on the WIP brought forward plus the amount spent this period are spread over all of the units. That’s why we have same figures.

Secondly, in FIFO the answer will not be equal between total cost of $44975 and total evaluation value of $55225. The difference between them is the cost of previous period (i.e. opening WIP of $10250) which we don’t account because they don’t belong to this period.

I thought that we need to have same figures in total cost and total value in FIFO method just like in weighted average (BUT we actually don’t)

Correct sir?

[maria2020]

Using the same example 6 if we assume that we have a total fixed cost of $36000 in non-constant production mix then we calculate breakeven units like this:

Product P (12000 units x $2.65)——= $31800
Product C (3360 units x $1.25)——–= $4200
Total contribution—————————$36000
Total fixed cost—————————–(36000)
Breakeven—————————————0

Breakeven units are 12000 for Product P and 3360 for Product C.

OR we can do it this way too…

Breakeven revenue of each product
Product P = (12000 x $7) = $84000
Product C = (3360 x $5) = $16800

Breakeven units of each product
Product P = ($84000 / $7) = 12000
Product C = ($16800 / $5) = 3360

Please tell me my calculations and BOTH ways are correct?

[maria2020]

Sorry, it was a typing mistake.

Material Price variance:
actual cost with actual production (AQ x AP) = 35464 kg x $4.60 = 163455
standard cost with actual production (AQ x SP) = 35464 kg x $4.50 = 159588
difference = $3867 (A)

Material Usage variance:
standard cost with actual production (AQ x SP) = 35464 kg x $4.50 = 159588
standard cost with standard production (SQ x SP) = 35600 kg x $4.50 = 160200
difference = $612 (F)

Is it correct now?

[maria2020]

Thanks for explaining it 🙂

Using example 1 of chapter 13 of the notes

Material Price variance:
actual cost with actual production (AQ x AP) = 35464 kg x $4.50 = 163455
standard cost with actual production (AQ x SP) = 35464 kg x $4.50 = 159588
Difference = $3867 (A)

Material Usage variance:
standard cost with actual production (AQ x SP) = 35464 kg x $4.50 = 159588
standard cost with standard production (SQ x SP) = 35464 kg x $4.50 = 160200
Difference = $612 (F)

As you can see that when we multiply SQ with SP then we have a total cost of $160200 and it is called standard cost with standard production.

My calculation and what I have written is correct?

[maria2020]

Thanks again.

Is it also true that the higher the learning rate is the slower labour learning is because employees are taking longer to learn.

A learning rate of 70% means faster learning of labour than a learning rate of 90%

A learning rate of 90% means that labour is taking more hours to make the production due to either because new employees are hired or we are having problems in the production process.

We can reduce the learning rate by employing professional or skilled labour even though it might be costly.

What I wrote is true?

[maria2020]

I got you 🙂 but I have little confusion, sorry to ask again

(1)
Total budgeted cost = budgeted units x standard cost per unit
Total actual cost = actual units x actual cost per unit
Total standard cost = actual units x standard cost per unit

The standard cost is always calculated using actual production?

We cannot calculate the standard cost with budgeted production because it will be the total budgeted cost (correct?)

(2) Material efficiency is calculated as:
standard cost = (actual hours x standard rate)
budgeted cost = (standard hours x standard rate)

But you previously said that actual cost is compared with standard cost with actual production in cost variances but in material efficiency, we are comparing total standard cost and budgeted cost – (but why)?

(3) When we multiply standard hours with standard cost per hour we get the total budgeted cost (or total standard cost?)

(4) You said that all cost variances are compared between actual cost & standard cost but this is not the case in the fixed overhead expenditure variance such as:

Fixed overhead expenditure = total budgeted expenditure – total actual expenditure

[maria2020]

1) I asked you about the standard cost (but forgot to ask all of them) which if I get this correct can be calculated in the following depending on budgeted hours / actual hours / standard hours such as:

a) Standard cost is calculated with budgeted hours
standard cost = (budgeted hours x standard rate per hour)

b) Standard cost is calculated with actual hours
standard cost = (actual hours x standard rate per hour)

c) Standard cost is calculated with standard hours
standard cost = (standard hours x standard rate per hour)

Please tell me first that these all are ways used to calculate standard costs but which way do we prefer

2) Standard cost per kg is actually the budgeted cost per unit which is calculated as (Total Budgeted costs / Total Budgeted units) which is actually what we do when flexing for actual production.

Thanks for your patience 🙂

[maria2020]

Thanks but I need a more in-depth answer to the following doubts…

1) This is how we calculate the total actual cost / total standard cost / total budgeted cost:

Total actual cost = actual kgs x actual cost per kg
Total standard cost = actual kgs x standard cost per kg
Total budgeted cost = budgeted kgs x standard cost per kg

2) These THREE costs are relevant in all of the variances and the comparison between them is called variance.

3) What is the difference between total standard cost and total budgeted cost?

4) We always compare the actual cost with standard cost in all the variances?

[maria2020]

Is it true that with the doubling rule we can calculate the average hour per unit to produce each unit but it is used only when the total units (cumulative output) comes in doubling range such as (1, 2, 4, 8, 16, 32, 64, 128, 256, 512 and so on)?

But formula can be used anyways but it is best to use the formula approach when the total units (cumulative output) do not come in doubling range such as (3,4,7,9,15,17,31,33,63,65,127,129,511,513 and so on).

Is that correct now?

[maria2020]

We are given the NFP data for two years (2009 and 2010).

We need to calculate % change in performance indicators to assess whether the performance of the business has improved or not.

% of student transferring = (20 – 8) / 8 = 150%

Since the students transferred to AT Co has increased by 150% indicates that students are taking more interest to move to our teaching company.

Number of late enrolments = (106 – 297) = / 297 = 64.3%

Since the number of late enrolments has decreased by 64.3% so the errors made by staff indicate improved efficiency.

% of students passing exam = (66 – 48) / 48 = 37.5%

This indicates that teaching standards are getting better because more of the students are passing exams for the first time.

Labour turnover = (32 – 10) / 32 = 68.75%

The labour turnover shows that less labour is employed in the business which is good because it will result in lower wages and salary expense

# of student complaints = (84 – 315) / 315 = 73.33%

The student complaints have reduced over time by a great proportion which shows that AT Co is doing good.

Average # of employees = (1081 – 1080) / 1080 = 1%

There is a slight change avg number of employees which is reduced by less than 1% which may or may not have any effect on the business.

Is that how we answer these questions in the exam? I mean the calculation and comment is enough?

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