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Hi. Thank you for your lectures. I find them very very useful.
Is there a rationale underpinning why Variable Selling Cost is not used in computing Standard Profit Per Unit when using Absorption Costing; i.e. (Selling Price – Unit Cost of Direct Material – Unit Cost of Direct Labour – Unit Cost of Variable Overhead – Unit Cost of Fixed Overhead = Standard Profit Per Unit)?
On the contrary, in Marginal Costing, Variable Selling Cost is used in computing Contribution (Standard Profit Per Unit); i.e. Selling Price – Unit Cost of Direct Material – Unit Cost of Direct Labour – Unit Cost of Variable Overhead – Unit Cost of Variable Selling Cost = Contribution (Standard Profit Per Unit).
Hi there,
Welcome to Open Tuition & thanks for getting in touch….
Ok so I think I understand your question – but if you do watch the videos, John deals with this aspect.
The variable selling cost shouldn’t be included in the PRODUCTION cost per unit (whether absorption or marginal method)
Hoping this explains & please watch the videos for a detailed overview.
Thanks
Cath
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