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Hi My Tutor, is this formula reflects correct way of describing absorption costing ?
Absorption costing formula
Sales revenue————————————————————————–x
OPen inventory at absorption costing(direct materials,labor and other expenses-all variable+fixed production overheard)-x
Marginal or variable production cost=(variable production overhead only)—————-x
Fixed production overheard———————————————x
closing inventory at absorption costing(direct materials,labor and other expenses-all variable+fixed production overheard)-(x)
equal cost of sales at absorption costing (direct materials,labor and other expenses-all variable+fixed production overheard)-(x)
equal
gross profit——————————————xvariable non-production overheard-(x)
fixed non-production overhead—–(x)
net profit————-x
these two will give me absorption cost of production is not it?
Marginal(variable)production cost(variable production overhead only)—————-xFixed production overheard———————————————x
What you have typed until ‘net profit’ is a description of absorption costing (except, of course, since normally the fixed overheads will have been absorbed based on the standard cost, there needs to also be the adjustment for the over or under absorption).
I don’t understand what your last two lines are trying to show.
I suggest that you watch the free lectures on this rather that trying to learn it as formulae. The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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