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Kubrick uses a standard absorption costing system to control the cost of its only product. The flexed budget for production overhead for the company shows a budgeted total overhead cost of $200,000 per period when 5,000 tonnes are produced and $264,000 per period when 9,000 tonnes are produced.
In period 9, when the actual output was 6,500 tonnes, total actual overhead cost was $245,000 (125,000 fixed and $120,000 variable). The standard fixed overhead absorption rate is $24 per tonne
Sir we have to calculate fixed overhead volume variance
In bpp kit it’s done like this
120,000 budgeted production
6500×24 156000 actual production
—————-
36000 favourableI don’t get it sir why are we using 5000 tonnes? And not 9000
It doesn’t asks for high low here
In requirement 1 it asked for high low to calculate variable overhead per tonne and fixed overhead
And using that budgeted fixed overhead it asked for fixed overhead expenditure in requirement 2 where we are asked to calculate fixed overhead volume as well, so expenditure was simple as we had budgeted fixed expenditure and actual, but how are we solving fixed overhead volume here
From task 1, the budgeted fixed overheads are $120,000 (this is not the budgeted production – it is the budgeted fixed costs), and you can see the workings for this in the answer.
From the question, the actual production is 6,500 and the absorption rate is $24, therefore the actual production as standard cost is $156,000.
It seems you are not clear about task 1 – have you watched my lectures on high low?
No no sir i know those are budgeted fixed overheads of task 1, $120,000, that’s why i typed they’re using 5000 budgeted tones which is multiplied by 24 to get 120,000 for budgeted production as they’ve written that 120,000 is budgeted production and 6000×24 is 156000 actual production
Because it asks us for volume, for fixed overheads budgeted ones which we calculated in task 1, we used that to find fixed overhead expenditure variance, but for volume we need budgeted production and actual, but we got 2 budgeted production lvls 5000 and 9000, and they’re using 5000, I can’t understand
Have you actually watched all of my lectures??
The fixed overheads are the same whether you use 5,000 or 9,000 units. Check it yourself and see!!
(The fixed overheads, by definition, do not change with the level of production.)
Mybad sir, really sorry i got confused because there were 2 different budgeted production, it’s probably because my exam is close which is why i couldn’t tell fixed doesn’t changes with level of production. Thankyou so much sir!
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