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Absorption Costing

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 4 years ago by AvatarJohn Moffat.
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  • August 4, 2021 at 3:57 pm #630386
    Avatarmaximus07
    Participant

    Sir can you please tell me how OAR in absorption costing avoids seasonality?

    August 4, 2021 at 4:03 pm #630390
    AvatarJohn Moffat
    Keymaster

    What avoids seasonality is using a standard OAR calculated (usually) for the year.

    Otherwise because each month the levels of production are likely to change due to seasonality, if an absorption rate was calculated each month separately it would keep changing and therefore the cost of production per unit would keep changing.

    Instead we use one standard OAR for the year as a whole which avoids this problem.

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