- This topic has 3 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Can you just confirm something for me. When you calculate the sales volume variance when using marginal costing you use the Sales Price- Contribution and if absorption costing is used, it’s the the total cost per unit, including the fixed cost per unit which is added into the overall cost as indicated on the cost card.
However, if sales volumes increase or decrease, the contribution and total cost per units for both will remain the same, correct? But, obviously the total variances for each costing method will not be constant as volumes increase or decrease. However, generally, is it true to say that the variances under absorption will always be larger for the same product if the prime costs are the same, because of the fixed cost element that must be always included in the total cost per unit with absorption. I just need to clear this in my mind, thanks.
I am not sure what you mean by “sales price- contribution” in your second sentence.
With marginal costing we take the difference in the volume and multiply by the standard contribution per unit; with absorption costing we take the difference in the volume and multiply by the standard profit per unit.
The other difference occurs with regard to the fixed overhead variances. With absorption costing there is a volume variance; with marginal costing there is not a volume variance.
Hi John
Sorry, that’s Sales Price- minus- Contribution. I understand as the only O/H variance with MC is expenditure.
Thanks
- You must be logged in to reply to this topic.