Comparison of absorption and marginal costing variances You have been provided with the following data for S ple for September:

Required:

(a) Calculate:
(i) the standard contribution per unit;
(ii) the standard profit per unit;
(iii) the actual fixed overhead cost total.
(9 marks)

(b) Using the information presented above, explain why different variances are calculated depending upon the choice of marginal or absorption costing. (8 marks)

(c) Explain the meaning of the fixed overhead volume variance and its usefulness to management.

(d) Fixed overhead absorption rates are often calculated using a single measure of activity.
It is suggested that fixed overhead costs should be attributed to cost units using multiple measures of activity (activity-based costing).
Explain ‘activity-based costing’ and how it may provide useful information to managers.
(Your answer should refer to both the setting of cost driver rates and subsequent overhead cost control.)

Transcribed Image Text:

Accounting method: Absorption Marginal Variances: () () Selling price 1900 (A) 1900 (A) Sales volume 4500 (A) 7500 (A) Fixed overhead expenditure 2500 (F) 2500 (F) Fixed overhead volume 1800 (A) n/a During September production and sales volumes were as follows: Sales Production Budget 10000 10000 Actual 9500 9700