Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Absorption Costing
- This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
- AuthorPosts
- February 19, 2018 at 7:51 am #437947
Oathall which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts. The following information is available:
Direct Materials-$4/unit
Direct labour-$15/unit
Selling Price-$50Fixed production overheads are budgeted to be $300,000 per month and are absorbed on an activity level of 100,000 units per month.
For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units.
Fixed selling costs of $150,000 per month will need to be included in the budget as will the variable selling cost of $2 per unit.
There is no opening inventory.The question required me to prepare the budgeted statement of profit or loss for the month using absorption costing. But, I have problem with the calculation of under/over absorbed.my calculation is (120,000-100,000) x $3 = $60,000 over absorbed. Based on the answer in my book, it is $60,000 under absorbed. Isn’t supposed to be over-absorbed ? because actual production bigger than budgeted production will lead to over-absorbed if i’m not mistaken.Please correct me if i’m wrong.
February 19, 2018 at 5:34 pm #437995Assuming that you have copied the question correctly, then you are right and it is an over-absorption (which will therefore reduce the profit).
If this was either a past exam question or is in the current edition of the BPP Revision Kit, then tell me which question and I will check 🙂
- AuthorPosts
- You must be logged in to reply to this topic.