Do you include a fixed overhead in the standard cost per unit?

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I have had one question where the fixed overhead was included and another where it was just the direct costs?

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  • Kelly7
    Kelly7 Registered Posts: 218 Beyond epic contributor 🧙‍♂️
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    Does it depend on whether is absorption or marginal costing? x
  • topcat
    topcat Registered Posts: 452
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    that is what i thought but the question does not mention any absorption or marginal costing which is confusing

    it is the second screen shot in my other thread

    http://forums.aat.org.uk/showthread.php?38107-Why-is-this-usage-varaince-adverse
  • Nps
    Nps Registered Posts: 782
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    It gives you a volume variance therefore it is telling you that it is absorption costing. Remember that marginal costing accounts for the whole fixed costs in that period regardless of output so there would be no volume variance.
  • topcat
    topcat Registered Posts: 452
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    Nps wrote: »
    It gives you a volume variance therefore it is telling you that it is absorption costing. Remember that marginal costing accounts for the whole fixed costs in that period regardless of output so there would be no volume variance.

    Thanks NPS fog is clearing a little now

    one bit that i don't quite get though is how do you know it is a volume variance is it the budget of 5000 and the actual of 5500 which is a volume variance ?
  • Nps
    Nps Registered Posts: 782
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    It gives you the volume variance on the top of the second sheet.

    You can then work out the overhead expenditure variance from the budget vs actual figures (remember that even when flexed, the fixed overheads will remain the same in theory). You can then work out the total variance for the final answer, using those two figures.
  • Nps
    Nps Registered Posts: 782
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    But yes, a volume variance will come about because more or less units are produced than budgeted for, so more or less overheads will be absorbed than originally expected.
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