Absorption costing and variable costing Flashcards
(8 cards)
1
Q
Why may a business choose to calculate a product’s full cost?
A
- Under IAS 2, inventory must be valuated at lower of FULL production cost or Net Realisable Value
2
Q
Full cost formula
A
Full cost = Direct Cost + Overheads
3
Q
Define Absorption Costing
A
A costing method that includes all manufacturing costs as part of the costs of a finished product.
4
Q
Overhead Absorption Rate
A
Total overhead cost / Estimated total units of absorption base
5
Q
What are the three stages of Absorption costing?
A
- Cost allocation
- Cost apportionment
- Cost absorption
6
Q
What is Cost allocation?
A
Allocation is when the overhead amount can be directly allocated accurately
7
Q
What is cost apportionment
A
An item of expenditure benefits two or more cost centres and cannot be calculated with accuracy.
8
Q
Algebraic method
A
