Note: On the Exam, you may be asked a question about a variance of any component of a budget. For example, you may be asked to calculate the variable costs flexible budget variance. To answer this question, calculate the difference between the actual and the flexible budget amounts of variable costs and determine whether the variance is favorable or unfavorable. If a question does not say which line to use, use either the contribution margin line or the operating income line. If the question asks for the volume variance, the variances on the contribution margin line and the operating income lines will be exactly the same, so it does not matter which line you use. The variances on these two lines are the same because the volume variance is the difference between the static budget amount and the flexible budget amount. The only difference between the contribution margin line and the operating income line is fixed costs, and fixed costs are exactly the same in the flexible budget as they are in the static budget. Therefore, the volume variance for the contribution margin line will be exactly the same as the volume variance for the operating income line.
Posted on: Sun, 07 Dec 2014 09:49:27 +0000
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