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Variance Analysis (part 1) – ACCA Management Accounting (MA)

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  1. Hi John,

    In the Actual Results column, the actual cost per unit can be derived from the production figures as $609,392/8900 = $68.47. The cost per unit in Closing Inventory is standard cost $68. Doesn’t using two different values within the same column introduce a discrepancy?

    Many thanks.

      • But doesn’t this result in an incorrect actual Profit in the Actual Results column?

        Profit = Sales – Cost of Sales = Sales – (Cost of Production + Closing Inventory)

        Cost of Production is valued at actual cost per unit ($68.47), and Closing Inventory at standard cost per unit ($68). Therefore, the actual Cost of Sales figure is incorrect. Therefore, the actual Profit is incorrect.

        Thank you.

      • It will not be the same as the financial accounting profit, but as explained in the lectures on the first chapter of our lecture notes the management accounting profit will not be the same as the financial accounting profit for various reasons.

        The purpose of management accounting is not to arrive at a profit figure but to enable management to manage the business better and (in the case of variances) to control costs.

  2. Sir I got a question,

    – In chapter 17 example 2 when we prepared the flexed budget we didn’t flex the fixed o/heads (i.e. in original fix o/head was $10,000, and in flexed budget fix o/head was $10,000).
    – The original budget gave us a std. profit/unit of $0.25/unit, and in the flexed budget our std. profit/unit was $0.416

    – However in this example when we prepared the flexed budget, we flexed the fixed o/heads to maintain the std. profit/unit as $7.

    Why is the approach difference in the two examples?

    Your response would be much appreciated!

  3. Hi sir! do we as management accountants prepare the cost card every month? because if not, then how have they absorbed the fixed overheads in example 1 to get the cost of fixed overheads per unit for the cost card? I assume they have taken 8700 units as the production to absorb the fixed overheads and 8700 units is the production of a month according to this example. in this example while preparing the fixed budget, we just multiplied 68 with 8700 units to get the cost of production and assumed that this is the correct cost of production and it doesn’t need any adjustment for under or over absorption of fixed overheads therefore I assume that we have taken 8700 units as the total no. of units produced to absorb the fixed overheads for the cost card. Could you please give clarity on this?

    • I did this to explain why it is with absorption costing that there is a problem with the fixed overheads and why therefore (as is explained in the later lectures) there is a fixed overhead volume variance (for the same reason as the under/over absorption of fixed overheads explained in an earlier chapter).

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