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Dear Moffat,
Hope you are fine.The below question is from ACCA examiner report – Example1 (https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f2/examinersreports/f2.fma-examreport-jul-dec14.pdf )
The summary of the question is as follows :
The standard cost card for a company’s only product is given below:
Selling price: $118
Direct labour: $80
Direct Material: $21
Fixed production overhead: $5
Profit = $12
If Budgeted production and sale = 8000 units and actual production and sale = 6000 units then What is the FLEXED budget profit ?The answer:
I have calculated as : 6,000 * 12 = 72,000 which is wrong
But the correct answer is : 6,000 * (118-80-21) – 40,000 = 62,000I am confused why the fixed overhead is NOT flexed? Because in the Opentuition notes (Chapter 24 – example 1) there is a similar example but in than question you are flexing the fixed overhead too. But here the fixed overhead is remained as the fixed budget!! Would you please explain why ?!
Thank you
In my lectures on Chapter 24 (and I assume that you are watching the lectures – using the notes without watching the lectures would be pointless), I make it very clear that the reason I flex the fixed overheads is simply to make sense of why (when we are using absorption costing) we have a fixed overhead volume variance.
When preparing budgets for any other reason, then by definition fixed overheads stay fixed, as I explain in the earlier lectures.
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