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AA Co had budgeted production of 40,000 units for December, and the budgeted costs
Materials:
Labour:
$120,000
$200,000
Fixed overheads $350,000
The actual production in December was 35,000 units.
What are the flexed budget total costs?
sir, I don’t understand the workings done in this question wouldn’t be the calculating standard cost per unit of materials labour and fixed overheads. in flexed in lectures you calculated fixed overheads then told the over and under absorptionwhy here fixed are considered as fixed is it because no over or under absorption is asked
By definition, total fixed overheads do not change with the level of production.
Certainly, if you were asked to prepare a management accounting profit statement (which is not the case here) and they were using absorption costing, then we would absorb the fixed overheads and then adjust for the over or under absorption.
Here all that is asked for is the flexed budget and in my example of a flexed budget I certainly do not flex the fixed overheads.
sir, you said while calculating flexed budget page 146 of notes chapter 26 example 1 in the flexed budget column you have written fixed overheads 133500 and original budget fixed overheads are 130500. yes I know now it’s because of absorption costing.
want to confirm if nothing is said that its absorption costing or marginal costing should I go with this way only don’t flex only if its mention absorption costing then only it will be different. I got it now sir thank you for clearing doubt
No.
If you are asked to prepare a flexed budget then the total fixed overheads stay fixed regardless of whether they are using absorption or marginal costing (just as I show in the example in my lectures on budgeting).
Chapter 26 is on variance analysis, and (as I explain in the lectures working through this chapter) the only reason that I flex the fixed overheads there is so as to explain why the fixed overhead variances are as they are when we are using absorption costing.
oh okay now I get it. when flexing budget fixed remains fixed but in variance analysis we flex when doing absorption costing
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