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Hi John,
Thank you for your continued efforts on OT.
I’ve got my F2 CBE tomorrow and feel fairly confident in being able to complete it successfully. Your notes and lectures are brilliant.
I have a query regarding one of the questions on the ACCA F2 Specimen Exam. It says:
A company’s operating costs are 60% Variable and 40% Fixed. Which of the following variances’ values would change if the company switched from standard marginal costing to standard absorption costing?
1) Variable overhead efficiency variance
2) Sales volume variance
3) Fixed overhead expenditure variance
4) Direct material efficiency varianceTheir answer is 2, which although i agree with, i ask why would 3 be incorrect? In the lectures we are told that the SVV and Fixed O/H exp. are different depending on the costing system used.
Would appreciate some clarification on this.
Thank you!
The fixed overhead expenditure variance is the same whether using marginal or absorption costing. You were certainly not told different on my lectures on this website!!
If using absorption costing, then there is also a fixed overhead volume variance (which does not exist when using marginal costing)
I just realised my confusion…when the notes said that the fixed overhead variances are calculated differently, they were referring to it’s reduced number of components only, rather than the variances themselves.
Sorry about that. And thank you for your reply.
Just came across this question of OT’s mock exam:
A company calculates the following variances under a standard marginal costing system:
(i) The sales volume variance
(ii) The total fixed overhead variance
(iii) The total variable overhead varianceIf a company changed to a standard absorption costing system, which variances could change in value?
(i) and (ii) only
(i), (ii) and (iii)
(ii) only
(i) onlyThe correct answer is (i) and (ii) only….
Am i missing something here? Sorry to be a pain…
Yes you are!
With absorption costing, total variance is expenditure plus volume. With marginal there is only expenditure (so the total is only expenditure)
*palm on face*…i hope i don’t stupid-out like that in the exam…reading it again this morning makes complete sense.
Thank you for your reply…and patience 🙂
Glad to let you know i passed the F2 CBE today. All thanks to your lectures and notes 🙂
Which of the following variances would be shown in an operating statement prepared
under standard absorption costing system?
1) Variable overhead expenditure Variance
2) Fixed overhead expenditure variance
3) Fixed Overheads Volume VarianceA 1 and 3 only
B 2 and 3 only
C 1, 2 and 3
D 1 and 2 onlyIt will be all three because all of them result in the actual profit being different from the budgeted profit.
Able Ltd is considering a new project for which the following information is available:
Initial cost – $300,000
Expected lite – 5 years
Estimated scrap value – $20,000
Addition revenue from the project – $120,000
per year
Incremental costs of the project – $30,000 per
yadi
Cost of capital – 10%Calculate the Accounting Rate of Return of the project (to the nearest %).
Please start a new thread when asking about a different topic, because this had nothing to do with variance analysis.
The profit before depreciation is 90,000 per year. The average depreciation is (300,000 – 20,000) / 5 = 56,000 per year. So the average accounting profit is 90,000 – 56,000 = 34,000 per year.
The average amount invested is (300,000 + 20,000) / 2 = 160,000.
Therefore the ARR is 34,000/160,000 = 21.25%
Because the sales volume variance is calculated using the contribution when using marginal costing, but using profit if it is absorption costing. All of the other variances will stay the same.
Have you watched my free lectures on variance analysis? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well 🙂
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