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What is the absorption variance?

The absorption variance represents the amount of labor and overhead costs that were not “absorbed” or charged to the products; they represent production costs that will never be recovered through the sale of the product.   Typically an absorption variance is generated when there is difference between actual and budgeted production volumes or a significant changes in the product mix manufactured during the period. If the actual volume and mix track to the budget, the absorption variance will be minimal. Typically the absorption variance is calculated using labor and overhead costs only.   Because materials are a variable cost, they are generally not affected by volume or mix fluctuations.

What is the absorption variance?
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