Standard Costing and Basic Variance Analysis (part 1)

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.

ACCA F5 lectures | Download ACCA F5 notes


  1. Profile photo of Et says

    Not convinced why fixed overheads of the Flexed budget should not be the same as the Budgeted(The Standard) ?Flexed Budgeting was examined in June2011 Q3 and Fixed cost of the budgeted and the Flexed was the same .Have I missed something here? Is there any one up there to drop me a line of explanation please?

    • Profile photo of John Moffat says

      @Et, If you are asked simply to produce a flexed budget, then certainly it makes sense to keep the fixed costs as per the budget figure.

      However, for variance analysis using absorption costing we are effectively flexing the fixed overheads (as in the example in the lecture).
      The reason is that the sales volume variance is calculated based on the standard profit per unit. Doing this effectively assumes that the fixed overhead per unit flexes (otherwise the standard profit per unit would change). Because of this we also have a volume variance for fixed overheads.
      The flexing in this example is to illustrate what is happening, and why. In a variance question in the exam you will not actually be asked to flex the budget – you will be asked to calculate the variances directly and possibly also produce an operating statement.

      • Profile photo of Et says

        @johnmoffat, My original question was raised in Nov2011. Today 19April 2012 I saw your reply of 15 Feb2012 .As I did not pass F5 last time I still need to know the answer why? Thanks for that.

        John,You also said that” in the exam you will not actually be asked to flex the budget ” What was qustion no 3 of June 2011 asking for 12 marks then? I may not have understand what the question is about ,as always is the case for me when it comes to ACCA papers, but this specifc question was asking to flex the budget. Check it out if you have a chance and prove me wrong.

      • Profile photo of John Moffat says

        @Et, My answer said that in a variance question you will not be asked to flex the budget but to work out the variances directly.

        In the June 11 exam, part (a) of question 3 did ask for a flexed budget, but it was not asking you to calculate the variances. (Parts (b) and (c) asked about variances but were not related directly to the flexing).

        Using absorption costing implicitly flexes the fixed overheads. This is why in Paper F2 there is under or over absorption of fixed overheads, and it is why in Paper F5 that the fixed overheads variances are not just the expenditure variance (as with marginal costing) but also the volume variance (which can be analysed into capacity and efficiency).

        The reason the example in the course notes flexes the budget first is simply to explain the problem and the reason for the extra fixed overheads variances, rather than simply quote rules (even thought the fixed overhead variance ‘rules’ are of course given in the lecture.)

      • Profile photo of Et says

        @johnmoffat, Thank you so much for taking your time .I felt that some one is keeping an eye on us to help us achieve our goal which is so encouraging!

        Opentuition has improved since the last time I used it.Your responses are quick. I wish people are aware how much this means .

        It costs £985 to attend 4 days tuition and 4 days revisoin at Kaplan.It might be more this year I don’t know, I did not pass last time so I am not attending class this time.I am revising useing my notes and OT.

        How much does it costs at OT ? FREEEEEEEEEEEE!!!!!. Listen every body it is FREEEEEEEEE Please be appreciative and tell the wold so that we will get more out of it.

  2. avatar says

    very clear/and easy to understand. however with regard to the explanation as to why the fixed overhead has change when we were doing the flexed buget.I was hoping the he would explain that to us.

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