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Hi, I would be grateful if anyone could help me clear my concepts with under and over absorption. a lot of the time I am getting the right figure however I am choosing the wrong option for under/over absorption. the same goes for favourable & adverse. if anyone could help that would be much appreciated.
You can’t really learn rules for these two things – you have to think through the logic behind them.
With regard to favourable and adverse variances – if the variance results in the actual profit being more than budget, then it is favourable (if less than budget then adverse).
With regard to absorption, if the amount absorbed is more than the actual fixed overheads then we have over-absorbed. If less then we have under-absorbed.
Have you watched my free lectures on these topics? 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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