All 38 Variance Analysis questions
More in Variance Analysis
What is the materials mix and yield variance? What are planning and operational variances? How can variances be interdependent, and why does that matter? What are the limitations and criticisms of variance analysis and standard costing? How do you calculate the fixed overhead capacity and efficiency variances? How do you interpret an operating statement under marginal costing? How do you compute and use a market size and market share variance? How do you reconcile standard cost of actual production to actual cost? How can variance analysis mislead in a JIT or lean environment? What is the total materials variance and how is it split, with a worked example?
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Budgeting & Forecasting › Variance Analysis

How does variance analysis differ under marginal versus absorption costing?

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Answer

Under marginal costing, fixed overheads are not absorbed into units, so there is only a fixed overhead expenditure variance (no volume variance), and sales volume variance is valued at contribution. Under absorption costing, fixed overhead is absorbed, giving a fixed overhead volume variance (capacity and efficiency), and sales volume variance is valued at profit. The reconciliation to profit therefore differs.
Real-world example Switching to marginal costing removes the fixed-overhead volume variance from the operating statement.

Common follow-ups: Which system has a fixed overhead volume variance? | How is sales volume valued in each?

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All 38 Variance Analysis questions