Operating statements

In this lesson

1. 0:00 Operating statements: bridging budget to actual profit
2. 1:12 Sales volume variance and flexing the budget
3. 2:45 Building the operating statement structure
4. 4:16 Marginal costing vs absorption costing differences
5. 5:21 Marginal costing operating statement walkthrough
6. 8:03 Working backwards: finding budgeted profit
7. 12:11 Calculating actual contribution from variances

About this lesson

Operating statements are essential for management control, helping senior financial managers understand what drove financial performance and where corrective action might be needed. You'll discover how the structure differs depending on your costing method. Under Absorption Costing, you start with budgeted profit, adjust for the sales volume profit variance to reach standard profit from actual sales, then incorporate all remaining variances (materials, labour, overheads) to arrive at actual profit. Under Marginal Costing, the process is similar but begins with budgeted contribution, uses a sales volume contribution variance, and handles fixed overheads separately as a cost deduction. The lesson walks you through the critical ordering of variances—a step you cannot get wrong—and shows you how to identify which variances to include and which represent double-counting (like capacity and efficiency variances, which are simply a breakdown of the volume variance). You'll work through two practical examples: one using Absorption Costing where you work backwards from actual profit to find budgeted profit, and another using Marginal Costing where you calculate actual contribution from the standard contribution on actual sales. By mastering operating statements, you'll be able to present clear, structured variance analysis that tells the financial story of a period—a core skill tested in Performance Management and essential for your role as a management accountant.

Duration: 15m