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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Which statement about fixed overhead variances in a standard marginal costing system is correct?

In a marginal costing system only a fixed overhead expenditure variance exists. Fixed overheads are written off as period costs and are not absorbed into product costs, so there is no absorption rate and therefore no volume, capacity or efficiency variance.

  1. AThere is no fixed overhead volume variance, only an expenditure varianceCorrect
  2. BThere is a fixed overhead volume variance but no expenditure variance
  3. CFixed overhead is absorbed into inventory at the standard rate, creating both variances
  4. DThe capacity variance is the only fixed overhead variance reported

Explanation

Under marginal costing fixed overheads are treated as a period cost and not absorbed into units, so no volume variance arises. Only the difference between budgeted and actual fixed overhead spending, the expenditure variance, is reported.

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