[Rajshekharrsf]

I forgot to mention my doubt in the post.

Customers are external to the business and Strength or weakness are internal to the business. Why they’re then stated as strength of the business?

[Rajshekharrsf]

I have noticed that a lot of the topics on the study hub are not explained properly or not explained at all but just mentioned. For instance, extranet and intranet. Whereas, the bpp and the kaplan books go deep into these topics.

I have the latest kaplan study text and exam kit. Should I read both studyhub notes and kaplan notes? would it not be too time consuming to read ot notes, kaplan book and study hub notes all together?

[Rajshekharrsf]

All right. Thank you!

[Rajshekharrsf]

Sorry, I forgot to mention my doubt regarding this question. I choose connected stakeholder for external auditor as well but there it is mentioned that an external auditor is external stakeholder. That’s what I don’t understand as they do have a contractual relationship with business.

The same point about being External Auditor an external stakeholder was mentioned in the explanations of the answers for other mcqs of this chapter on StudyHUb.

[Rajshekharrsf]

Thank you for you valuable advices. I have kaplan exam kit. Will that be sufficient?

[Rajshekharrsf]

Thank you! Understood.

I’ll remember to start a new thread for new topics.

[Rajshekharrsf]

Question 3:

I’m writing the question in short in my own words. The company estimates to get an incremental revenue of 1 mil as a result of investing in a machine. If it does not undertake the project, the revenue from current machine would increase by $0.2.

the question ask to calculate the incremental revenue from the project, what figure would be included in the answer.

My own answer to this question was 1mil+0.2 = $1200000.
The correct answer on study hub is the difference between the two, which is $800000

Could you please explain the logic behind the correct answer?

[Rajshekharrsf]

Wood
Glass
Aq × Ap = 170 × 12
Aq × Ap = 70 × 12.29
= 2,040
= 860 = 2,900
(i) Price = $360A
Wood
Glass
Aq × Sp = 170 × 10
Aq × Sq = 70 × 12
= 1,700
= 840 = 2,540
(ii) Usage = $140A
Wood
Glass
Sq × Sp = 300 × 0.5 × 10
Sq × Sp = 300 × 0.25 × 12
= 1,500
= 900 = 2,400

Yes, this is what has been given as an answer in the kaplan Book.

The question is actually an MTQ from section B of Kaplan KIT. Apart from finding the usage and price variance, it asks a few more other question which I have not posted here as I had doubt with question on usage variance only.

[Rajshekharrsf]

Understood. Thank you!

[Rajshekharrsf]

All right. I will keep that mind.

I didn’t calculate price variance for this question. The long workings given above is from the kaplan exam kit book. They have given workings for price variance because another part of this question (I have not mentioned it here) also asks for price variance as well.

My usual method of calculating usage is the following method:

Actual units*standard usage XXXX
-Actual usage (XXXX)
Variance in kg -X/X
standard cost per kg $X

But this method fails to give the correct answer for this question.

[Rajshekharrsf]

12000 units is assumed to be the fixed budget and rest of the activity levels (15000 and 18000units) are flexible. Am I right? and this is why the answer has used 12000 units in the calculation?

[Rajshekharrsf]

question 3. Calculate the flexed statement for the period showing for each of the four
items of cost and calculate the variance indicating if it is favourable (f) or
adverse (a) (to the nearest whole $)

answer. Labor flexed budget 33,570, Actual cost 32,889

(W1) Labour (direct and indirect)
High Low Difference
Activity 18,000 units 12,000 units 6,000 units
Cost $35,150 $25,700 $9,450
Variable element of cost $9,450/6,000 units = $1.58 per unit.
Fixed cost:
Total variable cost at 18,000 units = 18,000 × $1.58 = $28,440
Fixed cost = $35,150 – $28,440 = $6,710

I’m lost here. Why have they used high low method here. Are we to assume that indirect labor received fixed salary? There is no info about it given in the question. How can they expect us to make such assumption out of nowhere :/

[Rajshekharrsf]

please ignore the second question in my above post.

[Rajshekharrsf]

For my previous, are we using 12000 units because we have to assume that it’s the Fixed budgeted units for the period and as the question asks for budgeted cost per kg on the excess of purchases of 6000kgs, we use 12000 units to calculate the std cost of 3.70 and then apply discount?

Calculate the flexed statement for the period showing for each of the four
items of cost and calculate the variance indicating if it is favourable (f) or
adverse (a) (to the nearest whole $)

at flexed budget of 17000 units, we become eligible for discount as 17000 units require 6800 kgs of materials. So, the 6000kgs of these materials would cost $3.70 per kg and the remaining 800 kgs (in excess of 6000kg and hence at discount) would cost $3.33 per kg. The total should be then $24864. Shouldn’t this be the right answer?

[Rajshekharrsf]

An investment centre earns a return on investment of 18% and a residual income of $300,000. The cost of capital is 15%. A new project offers a return on capital employed of 17%.

14. If the new project were adopted, would the investment centre’s return on investment and residual income increase or decrease?

Return on investment Decrease
Residual income Increase
Tutorial note: The new project’s return on investment is less than that of the investment centre and this will result in a reduction in the centre’s return on investment. However because the project offers a return higher than the cost of capital it will increase the investment centre’s residual income.

Does RI increase because ROCE is higher so the company will get a surplus profit from the project, which it will add to its current profits and therefore there will more profits to deduct notional interest from?

[Rajshekharrsf]

Thank you!

[Rajshekharrsf]

Thank you! all doubts cleared.

[Rajshekharrsf]

To calculate the actual contribution during a budget period, we will never deduct the fixed overhead expenditure variance from the standard contribution on actual sales. Is this correct?

[Rajshekharrsf]

A company uses marginal costing. Last month the standard contribution on actual sales was $40,000 and the following variances arose:

Sales price variance $1,000 favourable
Sales volume variance $3,500 adverse
Fixed overhead expenditure variance $2,000 adverse
There were no variable cost variances last month.

37. What was the actual contribution for last month? (Answer in $)

The correct answer is $41000.

Actual contribution for last month was $41000.

$
Standard contribution on actual sales 40,000
Add: Favourable sales price variance 1,000
Actual contribution 41,000

Under marginal costing system, as per study hub, we are to only use only fixed production expenditure variance and not volume variance. So, the answer should be, 40000+1000-2000 = $39000.

Why have they not deducted 2000A from the contribution?

[Rajshekharrsf]

Thank you. I have watched the lecture. I had confusion because they referred labor rate as OAR. After reading your explanation, my doubt is clear.

[Rajshekharrsf]

All right. Thank you!

[Rajshekharrsf]

Thank you!

[Rajshekharrsf]

Thank you!

[Rajshekharrsf]

Understood. Thank you!

[Rajshekharrsf]

Thank you!

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