ACCA F5 Basic Variance Analysis Example 2 part b
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Dear Sir,
the variances are so nicely explained as you did in F2 . just to be clear, will i ever use the OAR to compare the fix costs of the budgeted with actual or will i actually leave the original fix costs as they were originally estimated at budgeted activity? in example 1 was it to show the effect on profit? because i could be wrong but you stated that in absorption costing the OAR is used with the actual production. Did you mean in absorption costing but not when preparing a flexed budget? OR when preparing a flexed budget with ABS COST we change the fix ohs to actual production and in marginal we do not. I would just like to be clear.
See my replies to hsnkzmi below 馃檪
oh ok great thank you very much
You are welcome 馃檪
Good morning Sir,
Just a quick question.
Under Fixed Overheads, will it always have the Expenditure variance and Volume variance?
Is it at all possible it could have Efficiency variance?
Under absorption costing there will be an expenditure variance and a volume variance (although, of course, either of them could end up being zero). The volume variance can be further analysed into an efficiency and a capacity variance, but this was examined in Paper F2 (and is in my Paper F2 lectures) and is not examined in Paper PM (F5).
Under marginal costing there is only ever an expenditure variance (which is explained in the next lecture).
Perfect, thank you sir.
You are welcome 馃檪
Yes – if preparing a flexed budget then the total fixed overheads remain as budgeted.
sir, won’t the total fixed costs be the actual units times std OAR? so different than the budgeted?
in absorption costing that is
Great lecture Sir! I just have one concern. Would we always flex the fixed costs under absorption costing while preparing a flexed budget? Or this is just for variance analysis? because in Budgeting example 2 you have kept the fixed costs un-flexed while preparing a flexed budget.
No – we do not flex fixed costs. By definition, fixed costs should remain the same.
As I explain in this lecture, I only flex fixed costs here so as to be able to explain why the fixed overheads variances are as they are.
Thanks for the prompt reply Sir. You are such an awesome person.
You are welcome, and thank you for the comment 馃檪
Great lecture Sir 馃檪
Thank you 馃檪