At the beginning of September, Paul Owen, the new manager of a division of Bohemia Industries received the August monthly prot statement. He was surprised that the prot had declined from that reported for the previous month. He was expecting an increase in prots because August's sales were signicantly higher than the sales for July and costs had not increased nor had selling prices declined- The divisional manager asked John Vaughan, the management accountant, if a mistake had occurred since all factors pointed to an increase in prots from July to August. Vaughan assured Owen that the gures were correct. Owen asked for an explanation of why the prot had declined from July to August. Vaughan replied that prots had declined because August's production was signicantly less than average monthly volume because August was a holiday period when many of the production staff were taking their annual holiday entitlement. The reduction in production staff resulted in production overheads being under-absorbed, and this under-absorption of overheads (known as a volume variance) resulted in additional xed overheads, compared with July, being assigned as costs within