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Dear Professor Moffat,
I have questions regarding volume variance, how can 3000 be favorable?
Same question for capacity variance, how is 1800 favorable?Can you please explain these to me, sir?
Peace be upon you
It is because we have compared with a flexed budget (because we have used absorption costing) and because we produced more units than we budgeted, the flexed budget has charged too much fixed overheads. So the actual profit will be higher, hence the favourable variance.
The quick was of getting it right is to say we produced more units, that’s good, so its variable 🙂
These days it is not so likely that you will be asked fixed overhead variances because they are assumed knowledge from Paper F2.
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