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October 13, 2022 at 3:25 pm
Hii sir, while doing profit statement why we are adding over absorption and subtracting under absorption from profit??
John Moffat says
October 13, 2022 at 3:52 pm
In order to arrive at the ‘correct’ profit.
October 13, 2022 at 1:02 pm
Hi sir! I am confused about what you’ve done in example 2. when you said that we would have charged each hour worked with $4 in the profit statement, which profit statement are you talking about? are you talking about the budget profit statement or are you talking about the final profit statement at the end of the month? and if you are talking about the budget profit statement, shouldn’t we look for any under or over absorption of fixed overheads in arriving at the budgeted profit and therefore compare 78,000*4 with $3,20,000 and not with $3,15,500?
October 6, 2022 at 9:34 am
Sir, In ex. 1 when preparing profit statement for january, why we want to adjust the fixed overheads? I am asking this because in the question they gave that it will take $20000 for 10000 units. but we produced 11000. if we assume fixed overhead is electricity bill, it will consume more electricity for producing extra 1000 units. then the bill will be higher than $20000. so the actual fixed overhead is $22000 and that is the correct amount, isn’t it? then why we want to make adjustments? the profit $72000 also correct, isn’t it???
Please reply to my doubt……..
October 6, 2022 at 4:54 pm
As explained in an earlier lecture fixed overheads do not change with the level of activity, by definition. Therefore electricity cannot be a fixed overhead if it is changing with the level of production.
October 6, 2022 at 7:37 pm
Can you plzz tell where I get the lectures of ma2
October 7, 2022 at 10:17 am
We only provide study notes for Paper MA2 and not lectures.
August 25, 2022 at 2:02 am
I passed the MA exam with 64% today. Thank you so much for your notes and lectures, Sir.
August 25, 2022 at 8:41 am
That is great – many congratulations 🙂
July 20, 2022 at 9:08 am
Hi John, I’m a bit confused on the cost of sales part. the C.O.S formula is op.inv + Purchases – Cl.inv. so I don’t understand what you have done there.
July 20, 2022 at 9:10 am
sorry wrong comment. I have understood my query.
July 20, 2022 at 5:21 pm
I am pleased that you now understand it 🙂
April 24, 2022 at 6:34 pm
Good day John, I am a bit confused.
If we sold 9,000 units and given that the cost of what was sold is what affects our profits and not cost of total units produced, shouldn’t the profit after adjustments for over and under absorption be $70,000?
My reason being that if we are charging $2 as fixed cost per unit sold at the end of the period we would have only charged $18,000 in fixed overheads and as such we would have under absorbed but based on your lecture it is the reverse and I am a bit confused.
I will be glad if you can help me see what I am missing.
April 25, 2022 at 9:54 am
The cost of goods sold is the cost of what was produced less the cost of what is left unsold in inventory.
The amount of fixed overheads absorbed into the cost of what was produced depends on the quantity produced (not the quantity sold).
April 25, 2022 at 12:35 pm
Thank you John ?
April 20, 2022 at 7:45 am
Hello sir, why we adjust the under or over absorbed overhead ? does it not turn the change the true image of profit?
April 20, 2022 at 2:38 pm
It is because the actual overheads are different from the overheads initially absorbed/charged in the statement, so we need to adjust in order to get the correct profit.
March 28, 2022 at 3:17 pm
I am planning to sit for the exam in April 2022, are these lectures up to date with the syllabus?
March 28, 2022 at 4:51 pm
Of course. Our lectures are always up to date for the current syllabuses!!
September 22, 2021 at 5:16 pm
Hi sir why didn’t you use the fixed cost of 315,500$ to calculate the over or under absorption for FC? I’m confused because In the first example you said to find out Fixed overheads used we take 11000×2 and compare to the 20,000. But to find out the overhead used in this one, don’t we do this 78000×4 and then minus from the 320,000??????????
September 23, 2021 at 8:42 am
In the first example we were preparing a budgeted profit statement and the budgeted fixed overheads were $20,000. In the second example we are comparing with what actually happened which was that fixed overheads were actually $315,000.
March 6, 2021 at 6:22 am
Greetings. When in the beginning you carry out the quick calculation of profit (9,000 x (35-27) = 72,000). The cost card used in the calculation uses the the oar based on the original budgeted hours of 10,000, and not 11,000 adulteration, so why is the answer not directly 74,000 here, which you get later after making adjustments to the workings.
March 6, 2021 at 5:50 am
For the workings in Ex1, why did you take the budgeted fixed overhead (20,000) and call it actual fixed overhead in the workings, thus leading the answer to be termed as an over absorption.
February 13, 2021 at 11:22 am
February 14, 2021 at 8:29 am
Thank you for your comment 🙂
February 6, 2021 at 1:54 pm
Thank you so much for those lectures!
I’m planning to sit on exam March 2021! Are those lectures up to date please? It’s easy study with your lectures rather than massive amounts of information in BPP text book! Thank you on advance ?
February 6, 2021 at 5:06 pm
Our lectures are always up to date for the current syllabus (and the syllabus will not be updated until after the June 2021 exams).
January 28, 2021 at 6:13 am
Why there is no practise question for chapter 9
January 28, 2021 at 8:52 am
Because most exam question test Chapters 9 and 10 together, so the test after Chapter 10 does this. You will find it is the same for questions in your Revision Kit.
January 13, 2021 at 9:08 pm
Very interesting videos. It’s so much easier when I study like that but I hope you update them because half of the lectures are removed from the textbooks.
December 30, 2020 at 3:10 pm
When you adjust for the closing inventory, are we not also adjusting for the overabsorption of fixed costs? i.e. the 2,000 overabsorption is included in the 54,000 that you subtract from the cost of sales?
I am sure that what you have done is correct, I just don’t understand how.
Would you please be able to help me understand this?
December 31, 2020 at 8:09 am
In management accounting we always value inventories at the standard cost. So the adjustment for the over or under absorption is the difference is based on the overheads actually absorbed.
November 26, 2020 at 10:12 pm
HI John while Illustrating for Feb I am encountering the problem as follow: Sales 11500 * 35 $402,500 COS Materials 11,500 * 12 138,000 Labour 11,500 * 8 92,000 V OAR 11,500 * 5 57,500 Fix OH 9,500 * 2 19,000 ($306,500)
Adjustment Overhead (1,000)
Profit before the selling cost $95,000
other selling costs (13,500)
I am unable to see the problem please can you advise?
November 27, 2020 at 8:49 am
The opening inventory was 2,000 units, and the production in February was 9,500 units.
Check the answer as printed at the end of the lecture notes.
November 27, 2020 at 10:22 am
Thank you for your reply.. I did not realise the P&L was there and of course a rookie mistake of illogical stock reasoning. Feels bad as I wasted 3 days to figure this out.
Cheers though, grateful!
November 27, 2020 at 4:54 pm
No problem 🙂
November 18, 2020 at 10:57 am
Dear Mr Moffat, regarding fixed production overheads – you end up calculating as expense only 18K USD, moreover you recharge as income 2K USD to the final profit, which in my opinion should be the opposite, it should be recharged as expense 2K USD, hence the final profit 59K USD. Appreciate if you can look at this, and confirm your opinion.
November 11, 2020 at 7:27 am
Sir for January in absorption costing Why did you consider the $20,000 as budgeted It says in the question that “fixed production overheads are budgeted at $20,000 per month” So how do you assume that this was the actual???
Isn’t the actual figures supposed to be $22,000?
November 11, 2020 at 9:22 am
The question asks for budget profit statements. The budgeted fixed overheads are 20,000 and (by definition) will not change with the level of activity.
With absorption costing we will absorb $22,000 but then have the adjustment for over-absorption because the budget figure should stay at $20,000.
October 14, 2020 at 2:29 pm
Hello there sir.
1) In the first exercize, if the actual fixed overhead is not mentioned, you take the budgeted fixed overhead as the Actual ?
Reason: In the second exercize, the actual fixed overhead was mentioned, so I observed you did not consider the budgeted fixed overhead as the actual this time around -like you did so for the first exercize.
March 6, 2021 at 7:45 am
With absorption costing we will absorb $22,000 but then have the adjustment for over-absorption because the budget figure should stay at $20,000
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