Good afternoon,
Can you explain the reasoning behind the calculation of the conversion costs? I'm confused with the values of the variable costs.
Thank you
Hello Mariana,
You're looking for the variable conversion costs used in the months of November and December, so you need to look at the cash budget provided and the payment periods.
Looking at the Balance Sheet, the payment period is 15 days and, by the end of December, you have 19 600€ of payable variable costs in the balance sheet. These relate to the 2nd half of december.
The value on the cash budget for december, 41 600€, reflects the payment of costs from the 1st half of december and 2nd half of november. Therefore you're only missing the 1st half of november. The value on the cash budget for november, 42 000€, reflects payment of costs from the 1st half of november and 2nd half of october.
Below, you have the information that "Variable conversion costs in October/N-1 are 40 000 €" . Therefore, we can assume that, from the 42 000€, 20 000€ reflect costs of october and the other 22 000€ reflect costs from november.
Therefore, you would end up with: 22 000€ + 41 600€ + 19 600€ = 83 200€
Good study!
You're looking for the variable conversion costs used in the months of November and December, so you need to look at the cash budget provided and the payment periods.
Looking at the Balance Sheet, the payment period is 15 days and, by the end of December, you have 19 600€ of payable variable costs in the balance sheet. These relate to the 2nd half of december.
The value on the cash budget for december, 41 600€, reflects the payment of costs from the 1st half of december and 2nd half of november. Therefore you're only missing the 1st half of november. The value on the cash budget for november, 42 000€, reflects payment of costs from the 1st half of november and 2nd half of october.
Below, you have the information that "Variable conversion costs in October/N-1 are 40 000 €" . Therefore, we can assume that, from the 42 000€, 20 000€ reflect costs of october and the other 22 000€ reflect costs from november.
Therefore, you would end up with: 22 000€ + 41 600€ + 19 600€ = 83 200€
Good study!