Mock exam question

The budget contribution is (7000 x 30% x 30) + (3000 x 30% x 40) = 99,000. This is for total sales of 10,000 units. The actual total sales are 8000 + 7000 = 15,000 units (i.e. 5,000 more in total) So the sales quantity variance = 5,000/10,000 x 99,000 = $49,500 (favourable)

Please let me know how to calculate the below Q's: 1. A Co is intending to produce a new product. They have made two test units, the 1st took 8hrs, and the 2nd took 6hrs. What is learning rate? 2. E Co makes 2 products X and Y SP 24 19.20 Materials 8.40 9.60 Labour 3.60 2.40 Var.O/H 1.44 0.96 Fixed O/H 2.88 2.40 Profit per unit 7.68 3.84 Budgeted production: X: 10000 / Y: 12500 units The Fixed O/H included in X relate to an apportionment of general O/H costs only. However, Y also includes specific fixed cost of $6000. If only X were to be made, how many units would need to be sold in order to achieve a profit of $144000?

1. If they make 2 units then the average time per unit is (8+6)/2 = 7. Therefore the learning rate is 7/8 = 87.5% 2. If they only make X then the fixed overheads will be 144,000 - 6,000 = 138,000. For a profit of 144,000, then therefore need a contribution of 138,000+144,000 = 282,000. X generates a contribution of 10.56 per unit Therefore they need to produce 282,000/10.56 units.

@johnmoffat said: The budget contribution is (7000 x 30% x 30) + (3000 x 30% x 40) = 99,000. This is for total sales of 10,000 units. The actual total sales are 8000 + 7000 = 15,000 units (i.e. 5,000 more in total) So the sales quantity variance = 5,000/10,000 x 99,000 = $49,500 (favourable)

Hello, How do we know when to calculate it using units? My answer was 57 000 (F) Will we use units when there is more than one product?

@johnmoffat said: 1. If they make 2 units then the average time per unit is (8+6)/2 = 7. Therefore the learning rate is 7/8 = 87.5% 2. If they only make X then the fixed overheads will be 144,000 - 6,000 = 138,000. For a profit of 144,000, then therefore need a contribution of 138,000+144,000 = 282,000. X generates a contribution of 10.56 per unit Therefore they need to produce 282,000/10.56 units.

Please can you explain further as I am totally lost as to how question 2 should be answered. The answer in the mock exam is 18 636 units which confuses me even more.

First question: We have to use units - sales quantity variance occurs if the quantity (i.e. the units) is higher or lower than the budget total quantity.

Second question: The question that marcie157 asked is NOT the same as the one you are referring to in the mock exam. In her question the fixed overheads are $144,000 but in the one you are looking at, you have to calculate the fixed overheads first and they come to $58,800 (and the answer to the question you are looking at is indeed 18,636). If you are totally lost, I can only assume that you have not watched the lecture on CVP analysis, because it is very standard application of CVP analysis. I am sorry, but I cannot type out the whole lecture here for you.

Thank you. I have now remembered how to calculate the second answer. For the first question. Can you tell me why we can't calculate it as (8000-7000 x 30% x 30) + (7000-3000 x 30% x 40) = 57000 (F)

That would give you the sales volume variance. This splits into sales quantity variance, which looks just at the change in the total sales (assuming the mix stayed the same), and into sales mix variance (which deals with the change in the proportions of each).

@dreamersk said: Please can you explain further as I am totally lost as to how question 2 should be answered. The answer in the mock exam is 18 636 units which confuses me even more.

Hi. I think, I finally got it:) In order to achieve a profit of £144,000, with a contribution of £10.56 and fixed cost of £52800(which is Product X: 10000unitsx2.88 + Product Y: 12500unitsx2.40, but minus Y specific fixed o/h of £6000) you get Total Contribution of £ 196796, divide by contribution per unit of £10.56 you get 18636 units, when you round it up. I have done the same logic previously, but for some reason couldn't get the correct answer.

Y plc produces widgets. Each widget should take 0.5 hours to make. The standard rate of pay is $ 10 per hour. Idle time is expected to be 5% of hours paid. They actually produce 10,800 units. They pay $ 50,000 for 6,000 hours, of which 330 hours are idle. What is the excess idle time variance? Answer is 316 Adv Please provide me calculation as soon as possible.

It seems that you have not watched the free lecture on advanced idle time variances! The standard idle hours are 5% x 6,000 = 300. The actual idle hours are 330, so there is an adverse variance of 30 hours. We cost this at the standard cost per working hour, which is 10/0.95 = $10.53 30 hours x 10.53 = $316

Good Afternoon. I've been trying to calculate Fixed Overhead Efficiency variance. Budget prod. 13,120u Actual prod. 12920u Budget fixed o/h $45,920 Actual fixed o/h $48400 Budget labour hrs 26,240 Actual labour hrs 25,200 I took Budget labour hours 26240/budget units: 13120u=2hrs Then took actual prod. 12920u x2hrs=25840hrs. But I do need a standard rate, how do I calculate it, please? or my thinking is not right? Thanks

@marcie157 said: Good Afternoon. I've been trying to calculate Fixed Overhead Efficiency variance. Budget prod. 13,120u Actual prod. 12920u Budget fixed o/h $45,920 Actual fixed o/h $48400 Budget labour hrs 26,240 Actual labour hrs 25,200 I took Budget labour hours 26240/budget units: 13120u=2hrs Then took actual prod. 12920u x2hrs=25840hrs. But I do need a standard rate, how do I calculate it, please? or my thinking is not right? Thanks

You need the standard cost per hour. $45920/26240 = $1.75 Then (25840-25200) x 1.75 = $1120 (F) because they worked faster than expected

Thank you DreamerSK, but please don't answer in this forum (because it is Ask the Tutor) Marcie: DreamerSK's answer is correct :-)

Right...my apologies.

No problem :-)

Is reducing total overhead costs an advantage of activity based costing ?

Of course - if total costs reduce then it must be an advantage!!! Have you watched my lecture? I specifically refer to this as being the main reason for using ABC in practice!!

Doesn't activity base costing usually change the amount of overheads allocated to certain product over another and not the total overhead costs applicable to all products.

It certainly does change the overheads absorbed into each product (assuming there are mote than one product). However, by identifying what is causing there to be an overhead can make the business able to be more efficient and lead to savings in the total overheads (which is a main reason businesses move to an ABC approach).

Right ok. I understand the confusion now. I was thinking that what you meant in the mock question was that activity based costing gives reduced overhead values compared to traditional costing if we use both for the same scenario. But what you meant is that activity based costing helps to identify drivers and hence the company can reduce overheads on the long-term.

Yes - that's correct :-)

Throughput Q: Co makes 2 products: X and Y. X Y SP 50 32 Material 10 6 Labour 20 15 Assembly time 20min 15min Max demand 1500 units 1000units Total assembly time is limited to 600hrs. Using throughput, how many units Y should produce? First contribution: X: 50-10=40/0.3hrs=133.3, so X FIRST Y: 32-6=26/0.25hrs=104, Y SECOND X: 1500u*0.3=450hrs Y: 600u*0.25=150hrs Where am I getting wrong, as my answer of 600units does not match any of the mock exam?

I haven't seen this method used before (what you have put above): The budget contribution is (7000 x 30% x 30) + (3000 x 30% x 40) = 99,000. This is for total sales of 10,000 units. The actual total sales are 8000 + 7000 = 15,000 units (i.e. 5,000 more in total) So the sales quantity variance = 5,000/10,000 x 99,000 = $49,500 (favourable) This is how I set out my answer: Sales Quantity Variance SMSQ std contrib Total SMAQ std contrib Total Variance X 7000 x $9 63000 7/10 10500 x $9 94500 31500(F) Y 3000 x $12 36000 3/10 4500 x $12 54000 18000(F) 10000 99000 15000 148500 49500(F) SMSQ - Standard mix at standard quantity SMAQ - Standard mix at actual quantity Does this look ok? Thanks Chloe

Marcie: 20 minutes does not equal 0.3 hours :-) (It is 20/60 = 0.33333 hours) Chloe: Since it gives the same result, it must be OK :-)

For Marcie's question is the answer 400 units as making all of X uses 500 hrs which leaves you with 100 hrs left. If you divide this by the time needed per unit: 100 hrs/0.25 hrs = 400 units Thanks, I am still trying to remember all of the variances.

You are welcome :-)

@johnmoffat said: 2. If they only make X then the fixed overheads will be 144,000 - 6,000 = 138,000.

Dear John, Could you explain please why fixed OH is 144.000? Thank you

Sorry - I must have been answering too fast because I made a mistake. At the moment, the total fixed overheads = (10,000 x 2.88) + (12,500 x 2.40) = 58,800 If they only make X then the fixed overheads will be 58,800 – 6,000 = 52,800. For a profit of 144,000, then therefore need a contribution of 52,800+144,000 = 196,800. X generates a contribution of 10.56 per unit Therefore they need to produce 196,800/10.56 units = 18,636 units (which is the correct answer :-) ) Sorry about that.