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hello sir, I am having problem in fixed overheads variance. In your lecture of variance analysis part c, you have adjusted the fixed costs as well. Aren’t they supposed to remain constant no matter how many units have been produced?
Yes – fixed costs do remain constant.
However if we are using absorption costing, then using a standard profit per unit effectively treats the fixed overheads as though they are variable. That is why we have a fixed overhead volume variance.
The reason I flex the budget in my lecture on variances is to explain why this volume variance arises.
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