ACCA F5 Basic Variance Analysis – Marginal Costing
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good day sir.
the reason we took absorption costing in example 1 is because fixed overheads are included in the cost card and in the actual production?
or it is just because it is there in the cost card and the question does not tell which method to use?
If the cost card includes fixed overheads, then they have been absorbed and they have to be using absorption costing.
Thank you so much!
hi i wanted to know why is your budgeted profit calculation for contribution is using the 8000 units of original production unites instead of sales unit.
Actually my question was, why did i calculate the contribution as per original fixed budget:
Sales: 600K
– Mat: 156.6
– Lab: 217.5
-VOH: 87K
——
is not as per 8000 x $22 = 176K
Please disregard my questions. I have now understood the differences and the whole concept. Thank you
Great 馃檪
I am pleased that you are now clear about the concept 馃檪
thanks for explaining why it’s different between absorb and marginal ( the difference in inv) that was added value
You are welcome 馃檪
Hi John,
In the Kaplan Study Text, I see that the flexed budget is showing the same fixed overhead as in the original budget even at a higher level of production for absorption costing example.
Please share your views.
Thanks,
Nitin
If we are simply preparing a flexed budget then yes indeed – fixed overheads stay fixed.
However as Kaplan will also explain, when doing variance analysis for absorption costing, the fixed overhead volume variance (and capacity and efficiency) arises because using the standard profit is effectively treating the fixed overheads as though they are variable.
(Which is the same problem that occurs when we are looking at the over/under absorption of fixed overheads as I explain in the lectures earlier on absorption costing).
I flex the budget in the variance lecture in order to explain this problem and I do suggest that you watch it again because I do say this!
Thanks John. This is useful.
Another quick question – Is it correct to keep the fixed cost in flexed budget same as the original one if we are using Marginal Costing?
Yes – that is correct (and is why with marginal costing there is not fixed overhead volume variance – only an expenditure variance) 馃檪
Great lectures sir! Thank you so much
Thank you for the comment 馃檪
Good day sire,
would you please make me understand why the cost value of closing inventory was not considered before arriving at a contribution of 176,000.00.
oh never mind sir!
i figured out only the unit sold (8000) and not total production unit (8900) was used.
I am pleased that you have figured it out 馃檪
Evening sire!
Would you please make understand this”however we have not been absorbing the overheads there is no volume thence” this statement is regarding fixed overheads
thanks sir
I assume you have watched the earlier lectures on marginal and absorption costing, and also the first of the lectures on variances where I go through variance analysis when using absorption costing.
If you have then you will know that with absorption costing, we charge fixed overheads based on the units actually produced, costed at the fixed overheads per unit. This results in an over or under absorption of fixed overheads and therefore a volume variance.
With marginal costing, we do not absorb fixed overheads and therefore the volume variance is no longer relevant.