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ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

Which statement about fixed overhead variances under marginal costing is correct?

Under marginal costing, only a fixed overhead expenditure variance arises. Fixed overheads are charged as a period cost rather than absorbed into units, so there is no absorbed amount to create volume, capacity or efficiency variances. The variance is simply budgeted fixed overhead compared with actual spending.

  1. AOnly a fixed overhead expenditure variance arises, because fixed overheads are not absorbed into unitsCorrect
  2. BA fixed overhead volume variance arises because output differs from budget
  3. CA fixed overhead efficiency variance arises when labour hours exceed standard
  4. DFixed overhead variances are calculated by comparing actual cost with flexed budget cost

Explanation

Under marginal costing fixed overheads are treated as a period cost and are not absorbed into product costs. Therefore there is no absorbed overhead, and no volume, capacity or efficiency variance. The only fixed overhead variance is actual expenditure compared with budget. Flexing a fixed budget does not change it, so the last option misdescribes the method.

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