Dear Professor, Arent there any lectures relating to Operating Statements. I can see it’s in the syllabus. It would have been great to learn them from you as well. Please make one! 馃檪
An operating statement is simply listing the variances in order to explain why the actual profit is different from the budgeted profit (as explained in the first lecture on variances).
You cannot actually be asked to produce an operating statement in the exam, although obviously you can be asked to calculate the individual variances.
under marginal costing, fixed overhead expenditure variance we got the exact same answer as absorption costing. then why do we do it again under marginal, the answer is still the same.
But we don’t do it again and I explain this in full in the lecture!!!
Variance questions are either marginal costing or absorption costing (not both). Whichever it is the fixed overhead expenditure variance is the same. If it is absorption costing then there is also the volume variance (but not if it is marginal costing)
Just to be clear, is the only time we classify more hours worked and its accompanying higher value as favorable is during volume and capacity variance?
Remember that total fixed overheads should not (by definition) be affected by the number of units produced (or the number of hours worked), and with marginal costing there is no volume (split into capacity and efficiency) fixed overhead variance (as you will see in the next example).
The problem when we are using absorption costing is that fixed overheads have been absorbed as part of the cost card – the budgeted total has been absorbed on the budgeted hours. The standard profit is based on this budgeted unit cost. If we have more hours available than budget then we are capable of making more units. This means that the fixed overheads per unit will be lower, which results in more profit. That is why the variance is favourable.
No. If you are asked for fixed overhead and capacity variances, then you calculate them as in the lecture (which is effectively assuming that labour is limited).
Got it. Thanks for your reply and also for your help..cleared F2 with 80% with just less than 35 days of preparation, all I did was went thru text, listened to ur lectures n practised every question in ur lecture notes. Keep up the great work 馃檪
In practice it could be several different things. However in the exam we assume labour is limited (and it is only relevant for fixed overhead variances when using absorption costing)
richie4 says
Dear Professor, Arent there any lectures relating to Operating Statements. I can see it’s in the syllabus. It would have been great to learn them from you as well. Please make one! 馃檪
John Moffat says
An operating statement is simply listing the variances in order to explain why the actual profit is different from the budgeted profit (as explained in the first lecture on variances).
You cannot actually be asked to produce an operating statement in the exam, although obviously you can be asked to calculate the individual variances.
richie4 says
Oh ok! Thank you once again, professor! 馃檪
John Moffat says
You are welcome 馃檪
chandan says
under marginal costing, fixed overhead expenditure variance we got the exact same answer as absorption costing. then why do we do it again under marginal, the answer is still the same.
John Moffat says
But we don’t do it again and I explain this in full in the lecture!!!
Variance questions are either marginal costing or absorption costing (not both). Whichever it is the fixed overhead expenditure variance is the same. If it is absorption costing then there is also the volume variance (but not if it is marginal costing)
loukasierides says
The efficiency i can understand
loukasierides says
Just to be clear, is the only time we classify more hours worked and its accompanying higher value as favorable is during volume and capacity variance?
thank you
John Moffat says
Thats correct (although I do hope you understood the logic as I explained it 馃檪 )
siddiqui93 says
how could the Capacity variance is favorable we budgeted 43,500 hrs whereas we actually worked 44100 hrs this would increase our cost also
John Moffat says
Remember that total fixed overheads should not (by definition) be affected by the number of units produced (or the number of hours worked), and with marginal costing there is no volume (split into capacity and efficiency) fixed overhead variance (as you will see in the next example).
The problem when we are using absorption costing is that fixed overheads have been absorbed as part of the cost card – the budgeted total has been absorbed on the budgeted hours. The standard profit is based on this budgeted unit cost.
If we have more hours available than budget then we are capable of making more units. This means that the fixed overheads per unit will be lower, which results in more profit. That is why the variance is favourable.
Sonal says
For Exam sake, can we assume that anything on which fixed overheads (costing) is dependant, we need to assume that it is limited?
John Moffat says
No. If you are asked for fixed overhead and capacity variances, then you calculate them as in the lecture (which is effectively assuming that labour is limited).
Sonal says
Got it. Thanks for your reply and also for your help..cleared F2 with 80% with just less than 35 days of preparation, all I did was went thru text, listened to ur lectures n practised every question in ur lecture notes. Keep up the great work 馃檪
John Moffat says
That’s great – congratulations 馃檪
siddiqui93 says
Why do we assume limited amount for labor?
John Moffat says
In practice it could be several different things. However in the exam we assume labour is limited (and it is only relevant for fixed overhead variances when using absorption costing)
siddiqui93 says
Thanks
John Moffat says
You are welcome 馃檪
ririshka says
Enjoyed!! Thank you!
carmina says
a lot of noises on the background…….
charlotte1 says
Its good information but too much talking in the lecture!
John Moffat says
Thats because you are supposed to understand what you are doing and not simply learn rules.
tgk4 says
Watevr the Lecture is Awesome
Thanks
tgk4 says
how is volume variance 3000 adverse said by you and capacity and efficiency be 3000 favourable(1800 f+ 1200f)
chandhini says
You don’t sit in the exam and say ” I dont see the point in doing this “!! Preposterous! LOL!! 馃檪
allamardneket4 says
CAN U KEEP THE SUBTITLES….:D:D:D:D
tanya92 says
amazinggggg
lekemich says
good job. the best lecture on F2
babyj304 says
Thank you open tuition for giving me the confidence that i need!