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Hi My Dear tutor, I have a question.
When i watched your budgeting lecture, your approach to budget preparation based on marginal costing and likewise, when i watched your variance analysis lecture you prepared budget based on absorption costing.
My question here,when we prepare budget based on marginal costing,fixed overhead figure will stay the same in both fixed and flexed budget but when we prepare based on absorption costing , fixed overhead will be different in the fixed budget and flexed budget.?
You lecture based on variance analysis and budgeting is really fantastic which helped me identify some mysterious part of management accounting’s budgeting and variance chapter.
In Your budgeting video lecture.
Marginal costing approach
in fixed budget, budget production was 10000 with 10000 fixed overheadsbudgeted overhead of 10000/budgeted unit of production =1 overhead absorption rate
in flexed budget , actual production 12000 but became 10000 overheads in flexed budget.In other words, we do not multiply absorption rate of 1 with actual production unit in marginal costing approach of budget preparation.
In Your variance analysis lecture video.
Absorption approachin fixed budget, fixed overhead was 130500 based on budgeted production 8700*15(overhead absorption rate)
in flexed budget, fixed overhead was 133500 based on actual production of 8900*15(overhead absorption rate)=133500
Did i understand it correct?
Thanks in advance
You understood correct. However if a question simply requires a budget then you would always assume fixed costs stayed constant (i.e. a marginal approach). The only reason I prepared a budget using absorption costing in the variance lecture is to make sense of the fixed overhead variances that appear when using absorption costing.
With the assistance of your lecture videos based on budgeting and variance analysis,
I finished it eventually. I try to firstly analyse in-depth and then solve questions.
Thank you very much billions of times.
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