P1 Exam Dumps : Management Accounting

A fixed budget will provide meaningful control information when actual activity differs from budget and variable costs are significant.

If actual sales revenue is compared to a fixed budget it is possible to tell whether a favourable sales variance is due to an increase in units sold or an increase in sales price.

If sales volumes were well above budget, adverse variable cost variances will probably be reported, against the fixed budget, since more variable costs have to be incurred to support the higher level of activity.

Reporting against a fixed budget tells management nothing about the efficiency of operations.

If a flexible budget is prepared then the budget variances calculated will provide a better indication of performance since actual results will be compared against an appropriate benchmark.

The fixed budget however provides more insight into actual performance.

The total fixed overhead cost variance in an absorption costing system is the amount of fixed overhead that has been under- or over-absorbed in the period.

The total fixed overhead variance is made up of the fixed overhead expenditure variance, the fixed overhead efficiency variance and the fixed overhead capacity variance.

The fixed overhead volume variance can be split into the fixed overhead efficiency variance and the fixed overhead capacity variance.

The total fixed overhead cost variance in an absorption costing system is the difference between budgeted fixed overhead and actual fixed overhead incurred.

In a marginal costing operating statement reconciling budgeted contribution to actual profit only the fixed overhead expenditure variance and the fixed overhead volume variance are shown.