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Fixed overhead

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Fixed overhead

  • This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.
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  • December 5, 2022 at 10:35 am #673446
    krrish2005
    Participant
    • Topics: 138
    • Replies: 229
    • ☆☆☆

    Sir when we make flexed budget the overhead remains the same as fixed budget by concept
    But sir if there is closing inventory and since the overhead remains fixed how will we value closing inventory
    Like if for 2000 units fixed budget is
    Variable cost (total) : 20000
    Fixed (total): 25000
    Sales price :100 per unit
    And if we want flexed budget of 3000 units produced and 2000 units sold
    How will we do that

    December 5, 2022 at 3:12 pm #673493
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54702
    • ☆☆☆☆☆

    The variable cost is 20,000/2,000 = $10 per unit.

    So: Revenue (2,000 x $100) 200,000.

    Cost of sales: Purchases (3,000 x $10) = 30,000, less closing inventory (1,000 x $10) = 10,000
    Giving a cost of sales of $20,000.

    So contribution = 200,000 – 20,000 = 180,000.

    Fixed costs are 25,000.

    So the flexed profit is 180,000 – 25,000 = $155,000.

    December 5, 2022 at 3:13 pm #673494
    krrish2005
    Participant
    • Topics: 138
    • Replies: 229
    • ☆☆☆

    And sir if we want absorption costing system then?

    December 5, 2022 at 3:17 pm #673495
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54702
    • ☆☆☆☆☆

    Your are not asked to flex budgets using absorption costing (although it is explained in my lecture on absorption costing).

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