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Which variance is affected by the marginal & absorptional costings?
And where do the changes due to these costing principles happen in the variance calculation?The sales volume variance is different, and the fixed overhead volume variance only exists when using absorption costing.
This is all explained in my free lectures on basic variance analysis (although as I explain in the lectures, they are very rarely relevant for Paper PM because they are revision from Paper MA. Paper PM concentrates on the advanced variances – planning and operational, and mix and yield.)
You did mean to say that whether we use absorptional or marginal costing the two variances will be affected and therefore we need to adjust as follows:
In Absorptional costing we use Profit per unit;
In Marginal costing we use Contribution per unit;[Sales volume and Fixed Overhead Volume variance will need to be adjusted; No other variances will need adjustment]
All correct?
Sir, I need correction about the last line of my previous question I asked you regarding we have to adjust Std Profit and Std Contribution in these two variances or not which are Sales Volume and Fixed Overhead Volume variances.
I saw your notes where you didn’t use Std Profit/contribution rather you used Fixed Overhead cost/hour to calculate Fixed Overhead Volume variance.
Please say again that only the sales volume variance will need to be adjusted for absorptional and marginal costing (Std Profit or Std Contribution respectively)
Please correct me.
Sir, please correct my last response.
And Thanks for answering me all the time (you are the BEST :))
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