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How would your volume variance analysis differ if you absorb overheads on units produced instead of labour hours?
Would you have an efficiency variance or not?I assume you are referring to the fixed overhead variance (when using absorption costing).
If it was absorbed on units then you would only have an expenditure and volume variance – you would not analyse the volume variance into capacity and efficiency.
Our free lectures explain this (our free lectures are a complete course for Paper F5 and cover everything needed to be able to pass the exam well).
It is now extremely unlikely that you will be asked to calculate fixed overhead variances in Paper F5 (especially using absorption costing). They are examined in Paper F2 and the F5 examiner is much more interested in the advanced variances (mix and yield; and planning and operational.)
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