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sir we do variance analysis between flexed and actual budget.So we do calculate all those formulas for variances like material usage variance , labour efficiency variance , fixed overhead expenditure variance etc between flexed budget and actual result. right?
another question, why do we calculate sales volume variance , cause when we flex the budget ,the sales units remain same between flexed budget and actual result
another thing sir we calculate OAR from original budget and not from flexed budget right?
The variances are to explain why the actual profit is the different from the budgeted profit.
The sales volume variance compares actual sales with budget sales and will therefore give the flexed profit.
All the other variances explain why the actual profit is different from the flexed profit.All of this is fully explained in my free lectures on variances.
The OAR is based on original budget figures, but (if using absorption costing) will be the same based on flexed budget figures because the same OAR is used. Again, I explain this in my lectures on variances.
ok i understood but i didn’t get ur last para,can u plz clarify it sir.
in original budget and flex budget the fixed overhead remain same.(if using absorption costing) will be the same based on flexed budget figures because the same OAR is used. Again, I explain this in my lectures on variances.
another thing the sales volume formula is (actual sales – budgeted sales) x standard profit
now in absorption costing how do we calculate the standard profit if standard cost of a unit is given and standard price is given cause to calculate profit shouldn’t we also need to know the non manufacturing overhead cost to get budgeted profit.
no need to reply to the question as i asked about not understanding ur last para.i gone thru the lectures
(if using absorption costing) will be the same based on flexed budget figures because the same OAR is used. Again, I explain this in my lectures on variances.
its because we cost the units based of oar, so comparing the fixed overhead in flexed and actual budget will give us total fixed o/h variance i’e; its over or under absorbed
but one thing why u said that closing inventory shld be value at standard cost?i understand that inventory will be costed based on oar but related to material or labour why should we be costed at standard rather than actual.
Closing inventories are valued at standard total cost.
The reason is that although some months the actual costs will be higher than standard cost, some months they will be lower. It will be silly to keep changing the valuation of inventory, and so (certainly for Paper F2) we always value the inventory at standard cost.
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