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I am a bit confused about the treatment of under absorption and over absorption. Which one do we add and which one do we subtract in the absorption costing statement. I was watching opening tuition lecture and over absorption was added . but in one of my text books over absorption is subtracted
Firstly, you cannot be asked in the exam to prepare a full absorption statement.
As to whether to add or subtract it depends on what you are starting with!
If the actual fixed overheads are less than the amount absorbed, then the actual profit will be more than the standard profit. If the actual fixed overheads are more than the amount absorbed then the actual profit will be less than the standard profit.
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