fixed overhead and volume variance

Home Forums Ask ACCA Tutor Forums Ask the Tutor ACCA F5 Exams fixed overhead and volume variance

This topic contains 1 reply, has 2 voices, and was last updated by Avatar of johnmoffat John Moffat 4 years ago. This post has been viewed 61 times

Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts

  • avatar
    accatobe
    Member
    • Topics: 5
    • Replies: 11

    Hi John, was reading the chat log on 11 June, and noticed that you mentioned:

    [12:57:26] johnmoffat : {Tophigh} It depends what you mean. If you are asking
    about producing a flexed budget, then it stays the same if it is marginal costing,
    but it changes if it is absorption costing (which is why there is a volume variance)

    could you please elaborate a little bit on why there is a volume variance because absorption costing is used? thanks.


    Avatar of johnmoffat
    John Moffat
    Keymaster
    • Topics: 3
    • Replies: 5306

    Suppose you are using absorption costing and the total cost per unit includes $3 per unit for fixed overheads.

    If you originally budgeted on producing 10000 units, then you were budgeting on there being total fixed costs of $30000.

    Suppose you actually produced 9000 units and the actual fixed overheads were $32000.

    In your flexed budget you would have fixed overheads as 9000 units (actual production) x $3 per unit (standard cost) = $27000.

    This means that the total variance is 32000 – 27000 = 5000. This can be analysed into 2000 (32000 actual total – 30000 budget total) which is the expenditure variance. And a volume variance (due to producing 1000 units less) of 1000 x $3 = 3000.

    For more detail on this watch my lecture on this website.

Viewing 2 posts - 1 through 2 (of 2 total)

You must be logged in to reply to this topic.