- December 29, 2021 at 9:43 am #644991PascavedireParticipant
- Topics: 2
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Hi, I have some problems concerning fixed costs in marginal costing. There was an answer to a question which says “Fixed costs are the same regardless of activity levels in marginal costing.” I know Fixed Costs are the same regardless of activity level… But when I was tackling another question there was budgeted fixed overheads and actual fixed overheads where actual overheads are now different. And it was asking for marginal and absorption costing profits… I was able to do it… But my concern is that actual and budgeted fixed overheads were not the same, so… There has been a change in fixed overheads for both marginal and absorption costing(I know that over/under absorption of overheads does not enter marginal costing… Nevertheless fixed overheads were not the same, with actual overheads not equal to budgeted overheads… so how can “under marginal costing, fixed costs are the same regardless of activity levels” be true?
Thanking you in advance for your help,
Pas Cave DireDecember 29, 2021 at 3:23 pm #645014John MoffatKeymaster
- Topics: 56
- Replies: 53174
The definition of a fixed cost is that it does not change with the level of production.
However it certainly can (and probably will) change for other reasons. For example the rent of the factory is usually classed as a fixed cost because it does not change with the amount produced, but the rent might well increase due to inflation For the same reason, the actual cost might be different from the amount budgeted, but not because of changes in the level of production.
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