1. Profile photo of naoise says

    Dear Sir,
    I’m just having some trouble wrapping my head around doing the the Fixed Overheads in this way. Surely the logic of the Flexed Budget is that we’re using the figures we would have come up with at the start of the year, had we known our actual production and sales figures from the beginning. But had we known from the beginning that we would produce 8900 units, we would expect to need more labour hours, and so we would never have used €15 as the absorption rate. So I guess my question would be, why do this extra variance analysis instead of just calculating a new absorption rate? Many thanks for these wonderful lectures.

    • Profile photo of John Moffat says

      Variance analysis is normally done monthly. Obviously it would be a miracle if everything went according to budget each month – some months we will use more labour and some months we will use less labour.
      However, it would be silly to keep changing the absorption rate every month (which would then change the standard costs and therefore the inventory value every month).

      We assume (certainly for Paper F5) that the estimates used for calculating the absorption rate are OK for the year as a whole. It just means that some months we will have a variance one way, and some months the other way.

      Hope that makes sense :-)

  2. avatar says

    Dear Sir,
    In this chapter, when you are making the operating statements, you divide the fixed overheads variances into expenditure variance, capacity variance and efficiency variance. Now when I review this lecture again, I could get the capacity variance $1800(F). Can you help me?
    Thank you very much for your help in advance !!!

  3. avatar says

    In relation to the controversy on the variation of the fixed overheads as against the fixed budgeted which we know it ought not to change as a fixed overheads, the can I say it is a semi-fixed overheads and not fixed overheads? since the unit cost is fixed ($3000/200units=$15) but the total cost changed?

    Thus in the short run it was fixed cost in nature (budgeted) but in the long run fixed costs normally becomes semi-fixed

  4. avatar says


    Can you please explain this question??
    A company has recorded the following variances for a period:
    $ Sales volume variance – 10,000 – adverse
    Sales price variance – 5,000 – favourable
    Total cost variance – 12,000 – adverse
    Standard profit on actual sales for the period was $120,000.

    What was the fixed budget profit for the period?





    Thanks :-)

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