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John Moffat.
John Moffat.-
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Melchizedek
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Hi,
At what point will fixed costs be flexed for an actual production level? I thought fixed costs stay fixed and would therefore not be flexed.
John Moffat
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They do stay fixed and are not flexed.
Melchizedek
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I thought it could be flexed when analyzing variances. Example 1 of Chapter 13 in the opentuition lecture notes captures this in the model answer.
John Moffat
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I make it clear in the lecture that the only reason I flex the fixed overheads is in order to explain why when using absorption costing the fixed overhead variances are as they are (i.e. why there is a fixed overhead volume variance).
You will not be ever expected to flex the budget in a variance analysis question but it is important to understand what is happening rather than just learn ‘rules’.
(Having said that, ‘basic variances’ (including the fixed overhead variances) are rarely asked in Paper PM because they are examined in full in Paper MA (was F2). For Paper PM it is the advance variances that are important (planning & operational and mix &yield variances).)
Melchizedek
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