The Management Accountant’s Profit Statement – Absorption Costing – ACCA (MA)
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sir how did u get the closing balance of 2000
Hi John thanks for the lecture!
Question: when adjusting under/over absorption, shouldn’t we only add/subtract to the extent of the no. of units sold as opposed to the total units produced in the profit statement? Because, it is only to the extent of the units sold that we are including the costs in the first place in the income statement.
So for the Month of January, given that we’ve sold 9000 units, only $2 * 9000 units = $18000 would be the relevant overheads that we’ve absorbed (pertaining to the goods sold) and therefore, we would have to absorb another $2000 given that the overheads would remain $20,000 for the month irrespective.
Could you give me better clarity here? Thanks!
The amount absorbed during the period is the number of units produced multiplied by the absorption rate. Separately we subtract the closing inventory (charged at the absorption rate).
why does the profit increase when you over absorb and why are you calling the budgeted overheads actual fixed overheads?
If you have over-absorbed then you have over-charged, and so the profit is lower than it should be. So you need to increase the profit.
I shouldn’t have said actual. It is just that because we are preparing budget statements, the fixed overheads taken are the budget overheads.
I dont understand Why the profit increases when there is an over-absorption
For method in February, what if there is inventory left in closing, does it need to subtract before adjustment?
Worked under assumption no inventory brought into Jan and none carried over into march, (production of 11 in Jan, subtract sales of 9 for a cfwd amount of 2 into Feb, production of 9.5 gives us a total stock of 11.5, which is then reduced to Nil with 11.5 Feb Sales figure)
Hope this helps 🙂
Sir, if the production was lesser than the sales then closing inventory wont be included right? So for the cost of production we wont subtract closing inventory?
If production is lower than sales then the inventory will decrease. (There must have been opening inventory otherwise they would not have had enough to sell!! The closing inventory will be lower than the opening inventory.)
Example 1 asks for the budget profit statements and so the actual fixed overheads are irrelevant.
In example 2 we are told the actual fixed overheads.
Noted,
Thank You!
You are welcome.
Dear John,
In example 1, For the ‘Actual Fixed OH’ You have taken the “Budgeted” OH of $20,000,
Whilst in Example 2, You have used $315,000 of the Amount provided for the ‘Actual Fixed OH’ instead the Budgeted OH of $320,000.
Could you please be kind enough to justify why you have inverted the use of the elements when applying it to the same concept & How I should be expected to deal with such similar situations at the Exam.
Much Appreciated! 🙂