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Hello Sir,
Sir, when we make flexed budget under absorption costing, do we adjust fixed costs to the actual activity level?
Becker F2 (page 15-15-12) says: Fixed overheads have also been flexed here as this is an absorption costing budget. If a marginal costing approach had been used, then the budgeted fixed cost would not be flexed.
Is it true?
Thank you
If ever you are asked to produce a flexed budget, the fixed overheads stay fixed.
I do not have the Becker books, but I would assume that they are referring to variance analysis when using absorption costing. As you will see if you watch my free lectures, when it is absorption costing then I do flex the fixed overheads but only so as to be able to explain the reason for the various fixed overhead variances.
You will not be asked to flex using absorption costing, but I do it in my lecture on variance analysis to make the fixed overhead variances understandable – the exam is testing your understanding and not just that you have learned rules.Do watch my free lectures – they are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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