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Hi sir,
The management accountant’s report shows that fixed production overheads were over-absorbed in the last accounting period.
What is the combination that is certain lead to this situation?
Answer: Production volume is higher than budget and actual expenditure is lower than budget
I do understand that actual expenditure is lower than budgeted but I can’t get it why is production volume is higher than budget in this particular case… can you explain the concept?
Thanks in advance
Overheads are absorbed based on the number of units produced. If they are producing more than they budgeted on producing then they will have absorbed more fixed overheads in total that they were budgeting.
Have you watched my free lectures on absorption and marginal costing?
OMG. Just when I was working out this question, I didn’t realize it. Yes, I did watch the entire F2 MA course, but occasionally I get confused and forget things.
Thank you so much.
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