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

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.

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.

kindest regards,

Shaun.

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.