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Hi,
I’ve been doing further reading about absorption costing and I think that maybe instead of helping, it has confused me.
I can see that fixed overheads can have a predetermined absorption rate (based on budgeted overheads/budgeted activity)
But I have found an article written by a Professor John Joyce of Sheffield Hallam University and he gives an example where he calculates two absorption rates.
In his example he calculates a variable overhead absorption rate of £12 per machine hour and he then goes on to calculate a fixed overhead absorption rate of £9 per machine hour.
This has really confused me because it seems to go against the definition of a variable overhead which increases as production increases.
I don’t understand if or how variable production overheads can have an absorption rate – and if this is something I need concern myself with for this exam?
I have been following the video lectures and the downloaded notes and I think I am posting this to the correct forum – I am genuinely confused!
Although variable overheads certainly do change with the level production, the way in practice that you would find the overheads per unit would be to estimate the budgeted total variable overheads and divide by the budgeted production (or do it based on labour hours or machine hours).
However, this is not relevant for Paper MA (F2). For ACCA it becomes relevant in Paper PM.
My lectures cover everything needed to be able to pass the exam well (provided of course that you also have a Revision Kit from one of the ACCA approved publishers and practice every question).
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