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VARIABLE AND ABSORPTION COSTING

Absorption Costing Variances

• Absorbed overhead = Overhead rate x actual units

produced

• Volume variance (Under / over recovery)

Difference between budgeted and actual production in
terms of volume

= (Actual units – Budgeted units) x Overhead rate

or

= Absorbed overheads – Budgeted overheads

• Expenditure variance

Difference between budget and actual in Rand terms

= Budgeted overheads – Actual overheads

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