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Hi john sir, i hope u r best in health”
John sir , fixed cost is not flexed on actual activity? am i right? but john sir when we absorb fixed factory overehead, that are absorbed on the base of actual activity. (FOAR * ACTUAL ACTIVITY LEVEL). It is confusing me. plz guide me.
Thanx alot
True – fixed cost is not flexed.
However, if we are using absorption costing we need to include fixed cost per unit. To be able to do this we divide the budgeted total fixed overheads by the budgeted production.
This gives us a problem if the actual production turns out to be different from the budget – that is why we end up having an under or over absorption of fixed overheads, and why in variance analysis we have a fixed overhead volume variance if using absorption costing.
Hi john sir, please look at following:
suppose if following data is given then and nothing is mentioned whether we are using absorbtion or marginal costing and you are said prepare flexed budget then what will u do with following?orignal Actual
output output1,000 units 1200 units
variable FOH $2/unit
Fixed FOH $3/unitRent of office $1000 per month.
Plz now guide me, and explain me further ff you got the point of confusion.
I need to see the whole question to be certain what is required.
If all that is asked for is a flexed budget, then fixed overheads will stay in total at the total budget figure. Assuming that the original budget production was 1000 units, then the total fixed overheads would stay ay 1000 x $3 = $3,000.
Hi john sir how r u?
John sir can u tell me the situations under which we flex the fixed FOH cost ? Is there can be any situation? John sir if it is conveneint for you then guide me otherwise john sir i will try to find out some question to send you. Actually i did’nt read it anywhere , this question came in to mind so i asked you. Whatever john sir thanx alot for your kind reply.
If you read my earlier post in this thread, you will see that I have already answered this.
We do not flex fixed overheads because the total stays fixed whatever the level of activity. That is the definition of a fixed overhead.
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