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Sir,
I dont understand the difference between variable overhead variance and fixed overhead variance. Why with variable overheads, we can subdivide into expenditure and efficiency only?
And why with fixed overhead variance has volume and capacity and and efficiency, not the same with variable overheads? SHouldn’t the variable overhead variances have these as well?
Thank you sir.
No – variable overheads only have expenditure and efficiency.
Fixed overheads have an expenditure variance (because the actual total expenditure differs from the budget total expenditure). If we are using marginal costing then this is the only fixed overhead variance (because the total does not vary with the level of production).
If we are using absorption costing, then there is also a volume variance, because in the units costs the fixed overheads are absorbed on the basis of the budget production. If the actual production is different from budget then we will be absorbing too much or too little.
(The capacity and efficiency variances are not extra variances – they simply analyse the reasons for the volume variance).All of this is explained in detail, with examples, in my free lectures on variance analysis.
The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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