Hi everyone, for everyone who followed my previous thread I'm currently studying an online accountancy & finance course, purely to help give me a better understanding in my own role as a manager within a business.
Assignment 1 was straight forward, Assignment 2 (the one I posted about previously) was tough but I got through it with the help of people on here, Assignments 3 & 4 I got through quite quickly, and now I'm on assignment 5 of 6.
This assignment focuses on budgeting, I have had a go but I'm unsure if I'm on the right track or if I'm wide of the mark so if anyone has time to take a look and provide a bit of advice that would be great.
I am assuming that the bit below the spreadsheet is the entirety of the question?
Where did you get 468,000 units sold from? I think that you have misread that part unless there was more to the question that has not been reproduced here.
Factory and selling expenses give a fixed and variable breakdown but there is nothing shown in the question reproduced to say whether the variance keeps the same pro rata percentages or whether all of the variance belongs with the variable expenses?
For the variances you need to be working out matters such as price and volume variances.
Anyway, this isn't an actual response yet, just a quick question about whether there was any more to the question that the bit below your spreadsheet.
kindest regards,
Shaun.
-- Edited by Shamus on Saturday 26th of March 2016 12:27:44 AM
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Also, your spreadsheet answers Q2. Do you have that question please as I think that you may have misunderstood what they mean by variances.
From a quick calculation I'm getting adverse variances for Direct Materials, Direct Expenses and Selling Expenses.
I am getting favourable variances for Direct Labour, Admin Expenses, Sales, Cost of Sales and Selling & Admin.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
What book are you using for this course as I'm concerned that it hasn't explained how to calculate variances properly and I would be interested to have a read if it's a commercially available text (likelihood is that if its a common text I may already have a copy in my library). That way I might be able to talk you through it by reference to your actual course text.
Just taking a simple example from the question.
At 400k units sales were £400k
At 460k units sales were £468k
You state that the variance is £68k but the variance is actually £8k F.
To calculate that you would take £400k / 400k units * 460k units = £460k
So the sales at 460k units should be £460k, they were £468k, the variance is £8k favourable.
Stating whether a variance is favourable or adverse is very important in variances.
Onto the fixed costs that is the most worrying part of the question in that no indication is given whether there was any slippage on fixed costs? Are we to assume that only the admin expenses fixed costs have changed?
That is a really poorly phrased question where in order to try and keep it simple they have actually made it more confusing to the reader.
It may be worth attemtping to get clarification from your tutor that on the variable apportionment of direct and selling expenses change with volume. (Your current answer assumes that fixed costs alter with sales volume).
kindest regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Apologies I have cut of question 2, the two questions are:
1. Prepare a flexible budget covering the level of output - 460,000 units
2. Compute the variances
It looks like I have completely mis understood the variances, I thought that it was the difference between the budget and the actual, and I was struggling to understand how at £1 per unit the sales of 460,000 units could be £468,000?
I would need the question to give far more info than it is doing at the moment.
The only criteria that we seem to have to go on is volume variances. In the following I treat the fixed costs as fixed except the Admin expenses where the question stipulated fixed costs variance.
The adjusted figures are all based on /400 * 460 to give the figures that we would expect at that level of sales.
Bear in mind that I am not privy to your course so the answer that I give may be out of step with the one that they are expecting in response to this assignment.
It may be that the assignment is looking to show you that just because some variances are favourable does not mean that they do not need investigating. In the workings above you will see that the Cost of sales is a favourable variance but that hides the fact that Direct materials and Direct expenses are both adverse.
Was perhaps the improved labour figure at a cost of higher wastage of materials?
As you will note, the way that I looked at this question was very different to the way that you looked at it. I assume that your answer was based on the study materials and examples provided by your training provider so I worry that perhaps I am not answering your assignment as your tutor want it to be answered.
Fingers crossed that some of the above helps you though even if such is merely making you look at the question (and especially those damned fixed costs that are so poorly descibed in the question) in a different way.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
P.S. Just realised that I make the variances but not the budget bit clear in the above. If you didn't work it out the adjusted figures are the one's that became your new budgeted figures at the higher volume of units.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
If you don't mind me saying, it would appear to me, that the course which you are on, is maybe, teaching you to run, before you can walk. I like nothing more than someone who advances themselves. You will no doubt find these questions a hell of a lot simpler, if you take a step back and not, join a simpler course, but one which gives you each building block in turn. You could even buy the texts to such like as AAT, books such as costs you'd get for pennies off of auction sites. These types of books are more than worth the outlay. It is always better to know why the answer is what it is, as to just knowing the answer.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
Shaun thanks for your help, it made it a lot clearer attached is my final workings which I think are correct.
Johnny, I agree it jumps through the steps fairly quickly, but I have learned a lot from doing it and have a far better understanding than before I started which was the aim. I'm never going to become a practicing bookkeeper, the aim initially was to have a better understanding of financial statements and how they are produced.
I Have one more assignment left to complete this course, which to be fair I thought was going to be relatively basic and it turned out to be a lot harder than I anticipated!
