[Amit]

Dear John,

Thanks a lot for your clarification…

Cheers
Amit

[Amit]

Dear John Sir,

Thanks a ton again for amazing clarification.

Cheers
Amit

[Amit]

Dear John Sir,

The explanation given you is basic logic which is quite clear to me.

However my point was that while producing 0.2 MM units and selling 0.25 MM units, there would have definitely being considerable time lag, which would have led to incurring of actual fixed overheads, which would in height of co-incidence match with the budgeted fixed overheads.

So necessarily actual Fixed overhead would have been different and so would be Marginal profit. In the current sum my concern is in absence of actual figures BPP has assumed Budgeted Fixed overheads = Actual…which is a far fetched assumption.

Might be i m missing some other point which you based on your rich experience can put light on.

Thanks
Amit

[Amit]

Dear John Sir,

Thanks again for the clarification. Take care and may God bless you and your family.

Best Regards
Amit

[Amit]

Dear John Sir,

Thanks a lot for this clarification however this brings me to another doubt.

The steps mentioned for coming to Overhead Absorption Rate ( OAR) is

Step 1 : Estimate the Overheads likely to be incurred during coming period
Step 2 : Estimate the activity level

I have 2 doubts

1) Now in step 1 do they mean only Production overheads or all overheads including Admin and Selling and Distribution Overheads as well ( The doubt since in the example given after these steps in BPP they state ” The Budgeted PRODUCTION OVERHEAD WAS”..

2) If the answer to doubt 1 is “Only Production Overhead” – Then since the ultimate saleable items are our units, if we don’t factor in Admin and S&D Overheads, isnt the OAR understated to that extent and wouldn’t it lead us to under pricing our product to not recover complete costs.

Thanks Again
Amit

[Amit]

Thanks a lot dear John sir…

[Amit]

Dear John Sir,

Thanks a ton for that comfort ..cheers..Amit

[Amit]

Dear John Sir,

You are God Of Costing. What an amazing clarity of concepts you have got and what a phenomenal explanation you give…

I am just too Fascinated by you sir…

Thanks a ton again…

Cheers
Amit

[Amit]

Thanks a lot dear John sir…

[Amit]

Dear John,

On a deeper look to the options available in this case , i am guided by your coaching in u r lectures where u said that its upto a particular business unit to select the cost unit.

Can you kindly explain the concept of production run which is also given as an option in this case and also explain why that cannot be an appropriate cost unit for a cake manufacturer besides cake, batch and kg as we already discussed.

Thanks a lot
Amit

[Amit]

Dear John,

Great. Even i thought the same and thanks again for concurring with my thought process.

The only risk is in case in exam an examiner sets this question then even he shud agree ;). else students who apply logic will straight away loose 2 marks….

[Amit]

Great John sir..I really like it when you concur to my thought process 😉

I really owe you a lot for making things so crystal clear that such doubts emanate…

You are a starr and a human being par excellence..

Thanks Again
Amit

[Amit]

Dear John Sir,

You are really fantastic. Thanks again

Amit

[Amit]

Dear John Sir,

i have a doubt as to Flexed Budget Overhead cost. When all the figures like Material, Labour etc are flexed to new level of activity why is Fixed Overheads kept the same ?

in the new activity since its absorption costing even the new additional units will absorb more amount of overheads so it should be accordingly adjusted.

kindly clarify

Thanks

[Amit]

Dear John Sir,

In Hindsight just wanted to have a logical explanation on practical applicability of this formula.

Is it logical for a company to have an equation like 20Q where Q is the quarter number. Now it doesnt fit my logic that what will happen in quarter 4 as compared to quarter 1 that the multiplication coefficient would be 4 to this figure.

I know that this is no technical difficulty but being in your company i like to think a lil out of box and not concentrate just on exam.

Thanks Again
Amit

[Amit]

thanks a ton dear john..as always u r fantastic….

[Amit]

Hi John,

1) Trust in this case you are using a Marginal costing approach.

Since if its a case of Absorption costing then the Fixed overheads would be based on a standard absorption rate and even in the flexed budget the absorption of Fixed overheads would be on Actual quantities produced.( In this case 30000 Units).

2) Also wanted to check if you agree and you have used Marginal costing approach, what is the basis of such assumption ?

Kindly clarify.

Thanks
Amit

[Amit]

Dear John,

As always i am awed by your clarity of concepts.

I would agree with you and just an additional input. In Middle east there are 2 ways in which this is managed. The normal cakes comes in 1, 2 ,3 and 5 kgs lots which are priced as per kg. for eg a 1 Kg cake costs $10 , 2 $20 and so on.

Also there are special decorated cakes which are priced Price per kg + cost depending upon selected decorations.

Thanks again for clarification and I am happy my sense of directional thinking was not very much out of way.

Cheers
Amit

[Amit]

Thanks a ton dear John. i will check the same

[Amit]

Dear John,

Thanks a ton for great clarification and great clarity. I realised my mistake and will ensure the same in future

[Amit]

Dear Mel,

Kindly Note the classification of Primary or secondary depends on whether u had collected the date specifically for the purpose or not.

Let me explain. For people interested to know the occurence of earthquake in a region, they may collect the earthquake history of past 10 years. Now for these people this is primary data.

In case this same data is further used by Insurance company in business of insuring earthquake policies, the same data becomes secondary.

Kindly let me know if you need any further clarification

[Author]

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