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If there is calculation of variance between Fixed budget and Actual so it can has volume and price variances.
If variance is calculated between Flexed budget and Actual so there is only price or expenditure variance. (No Quantity or Activity variances).Question two
In Sales Variance, we compare Actual and Fixed Budget.
In Cost Variances, we compare Actual and Flexed Budget.
Are these correct?Question three:
Flexed budget and Flexible is made under marginal costing? This is why fixed cost is same as budgeted?Please don’t ask for replies ‘ASAP’. We do not sit in front of the computer all day (I do have work to do) but I always answer within 24 hours.
Q1 If using marginal costing then the only variance is the expenditure variance which is the difference between the actual fixed overheads and the originally budgeted fixed overheads.
If using absorption costing then the total fixed overhead is the difference between the actual fixed overheads and the flexed budget fixed overheads (and the total can be analysed into the volume variance and the expenditure variance).
Q2 For the sales volume variance we compare the actual sales with the budget sales and cost out at the standard profit or contribution (depending on whether we are using absorption costing or marginal costing). For the sales price variance we compare the actual sales at actual selling price with the actual sales at the standard selling price.
Q3 If a question requires the preparation of the flexed budget then fixed overheads stay fixed whether we are using absorption or marginal costing.
Variance analysis when using absorption costing effectively assumes that fixed overheads are flexed (however you will not be required to produce a flexed budget if calculating variances – I do flex it in my lecture simply to explain why the absorption costing variances are as they are, i.e. why there is a volume variance.
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