Home For AAT student members AQ 2016 Professional Diploma in Accounting Management Accounting: Decisions and Control

Budgeted cost

Sorry if I’m missing something but can someone clear this up for me?
I’m working through this task but can’t understand why we are including the fixed overheads in the formula.
Surely we need to remove them so 37300-7000= 30300
Divide by 10000 then x 10500 units then add the fixed costs back making the budgeted cost for actual production to be 38815???
But the answer is 39165 so they are including the fixed overheads in the above! Surely this is treating the fixed overheads as a variable cost???
What am I missing here??


  • Pian32Pian32 MAAT Posts: 337
    Take your actual costs and work back the variances given in the second table. You need to work out if the 3 unlabelled are F/A and can go from there. You'll notice the difference you have is equal to the fixed overhead volume variance.

    The overhead amount is flexed due to it being calculated on a per unit absorption basis. Think of it as being budgeted to cost as £0.70 per unit rather than by the total of 7000. So when you make extra units the expenditure is over absorbed due to the volume.

    £38589 +Favourable - Adverse is the other way you could find the starting figure.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Planned for Dec 2020
    F6- Passed Sep 2020
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