#### Basic Variance Analysis: Please note that this lecture relates to Chapter 13 of the Course Notes and not Chapter 12 as stated in the lecture.

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chioma022002 says

Am I alone here I cant view any lecture. Is it OT or my device. Am experiencing this for the first time.

johnmoffat says

Have you looked at the technical support page?

The link is above.

Azra says

I cannot find the question on the f5 course notes on p67? Can someone kindly post the link or direct me to where i can access this info. Thanks

johnmoffat says

As it says above this lecture, it relates to Chapter 13 and not to Chapter 12.

The example used is on pager 71 of the Course Notes.

Yasen says

Hi,

In this lecture is stated, that Fixed O/H in Fixed budged change in Flexed budget at actual prodecued units @ std costs.

But,

In “Budgeting” lecture is stated that Fixed overheads remain unchanged when preparing flexed budged.

It is the same thing I think, why there are different aaproaches?

Thank you,

regards,

Yasen

johnmoffat says

This is explained in the lecture if you listen all the way through.

Fixed overheads in total certainly do not change with the level of production.

However, if we are using absorption costing and doing variance analysis, then simply assuming the the actual profit should be the actual sales units x the standard profit per unit, is implicitly treating the fixed overheads as though they were variable.

This is not the case and this is why we have the fixed overhead volume variance appearing later.

The reason I produced a full flexed budget was so that later the reason for fixed overheads volume variance would be clear.

Yasen says

Thanks,

I think I understand,

but when we were budgeting with you in “Budgeting” lecture, the purpose of preparing flexed budget was to compare the figures with actual budget and then define the variances. Absorption costing was involved too. But then we did not adobt fixed costs as variable costs for variance defining purposes.

I totally accept the way, I just want to clear it for myself

Thanks again!

regards,

Yasen

chukelu2009 says

Please i want to know if the use of formula will give me a full mark,because i find it very simple and easy like for Material :

SQ SP

AQ SP

AQ AP when this fumula is used do i still get my full mark?

helensqq says

Hi John, question 10 Zatler, material price variance:

X actual quantity X actual price =1,256,640 understand

actual quantity X standard price =1,207,360 don’t understand, where is the figure from?

actual quantity 15400 X standard price 6kilo X $12.25=15400 x 73.50=1, 131,900, not 1,207,360

Similarly, material Y price variance, actual quantity X standard price should be =154000 x 3kilo x $3.20=154000 x 9.6=147,840.

Which part am I wrong? Thanks

johnmoffat says

For the price variance we are seeing if we paid the correct price per kilo or not.

The actual purchases were 98560 kg. We actually paid 1256640, but we should have paid 12.25 per kg.

So for the actual quantity purchased, we should have paid 98560 kg x $12.25 per kg.

The same logic applies to the price variance for material Y.

For the price variance, it is irrelevant whether we used more or less material than we should have done – all we are looking at is whether we paid the correct price per kg for what we bought, or not.

helensqq says

thank you so much. however, I think there is arithmetic mistake for adding up all adverse variances, should be 204,236 (A)- 14,861(F)=189,375(A), original budget profit 219200-189375=29825.

anam says

Hi, why did’nt we simply take 8000 units to get total costs in fixed budget…..it is simpler than first taking cost of production then deducting closing inventory

johnmoffat says

By all means, and even simpler is just to multiply the budgeted sales by the standard profit in order to get the budget profit!!!

However, you will not be asked to produce the fixed budget (or the flexed budget) – the reason I have done it in the lecture is to make it clear what the variances are actually calculating – the difference between the actual figures and the flexed figures – i.e. the standard costs for the actual production (not the standard costs for number sold).

bik123 says

Eventually i dont heard on this lecture why you compute variance of fixed overheads, i thought that they are fixed even if we sell more units, and we just appotrtion them on more units. Could you explain? Thank you

johnmoffat says

The lecture does explain.

Fixed overheads should indeed be fixed, but if we are using absorption costing then we are charging fixed overheads on a unit basis. Using standard profit per unit is automatically treating fixed overheads on a unit basis, and so because they do not in fact change with the number of units this is why we have the fixed overhead volume variance.

Chris says

It does make me chuckle when you have to repeat yourself more than once.

Absorbtion costing includes fixed overhears.

Marginal costing doesn’t include fixed overheads.

Therefore, the level of fixed overheads in this example does change due to it being absorbed in the cost card.

Am i correct? Hopefully, because that was my understanding.

Obviously, in the example, if it were to be marginal. You would have contribution listed out….?

johnmoffat says

With absorption costing, the amount charges in the profit statement does change (because it is charged on a per unit basis).

However, since the actual total fixed overheads does not change with production, we then need the adjustment for over or under absorption of fixed overheads.

bdolegend says

dear admin, are ALL the lectures for p2 by Mike on (INT) variant? Lemme know, thx

opentuition_team says

yes they are