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Sir I have 2 questions related to this example
1) While calculating material cost in flexed budget why have you multiplied standard rate per unit i.e $18 by 8900 units. Why you cannot multiply $4.5 per kg by 35464 kg?
2) Why fixed overheads are flexed in flexed budget, I have seen the whole lecture but I cannot understand it. You said that you have calculated by using absorption cost approach. What difference would it make if you would have calculated using marginal cost approach?In example 2 of chapter 11 you did not flexed the fixed overheads, however ,in example 1 of chapter 13 you have flexed fixed overheads.. Can you please tel me the reason of this difference in treatment?
1. The flexed budget is showing what the material should cost for the number of units actually produced. 8900 units were produced and they should cost $18 per unit.
Obviously the cost might end up being different – either because they used the wrong quantity off material, or because the paid the wrong price per kg, or both. We look at why the actual cost is different from what the cost should have been when we come to calculate the variances.2. In a normal flexed budget we do not flex the fixed overheads – the total fixed overheads should remain fixed regardless of the level of production.
I flex them in the variance lectures purely to explain why with absorption costing, we end up with the fixed overhead volume variance. With marginal costing, we do not have a volume variance, only an expenditure variance.
You can just learn rules for the variances, but it is dangerous to simply learn rules without understanding.
I do explain all of this in the lectures, and it might be worth you watching them again.
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