Module 11 - Absorption Costing Flashcards
OAR
fixed production overheads / basis of absorption
predetermined OAR
budgeted overheads / budgeted basis
period-end OAR
actual fixed production overheads/ budgeted basis
actual OAR
actual fixed production costs / actual basis
if actual production is equal to budgeted production which OAR is used
period-end
if actual production is greater than budgeted production which OAR is used
actual OAR
if actual production is lower than budgeted production which OAR is used
period-end with an addition expense calculated by taking the difference between the actual overhead expense and OAR x units produced
pro forma for calculating profit under absorption costing
Sales Rev (COS - variable pro costs + OAR x units) Standard gross profit (additional expense) Gross profit (variable non pro costs) (fixed non pro costs) net profit
Stock valuation under absorption costing
(opening stock add actual production units less actual sales units ) x (Variable production costs + OAR per unit)
Difference between absorption and marginal costing
Key difference is how they treat fixed production overheads - marginal costing writes them off in period incurred
Difference in profits between absorption and marginal costing
stock movement x OAR
if stock is rising profit under ____ costing is higher
absorption
If stock is falling profit under ____ is lower
absorption
