Absorption/marginal costing formulas

Question 1

Overhead Absorption Rate (OAR)

Answer 1

Total Overheads / Total Activity Level (e.g. machine hours, labour hours)

Question 2

Over/Under Absorption

Answer 2

Actual Overheads - Absorbed Overheads

Question 3

Cost per Unit (Absorption)

Answer 3

Prime Cost + Absorbed Overheads

Question 4

Prime Cost = Direct Materials + Direct Labour + Direct Expenses

Answer 4

Direct Materials + Direct Labour + Direct Expenses

Question 5

Profit (Marginal Costing)

Answer 5

Contribution - Fixed Costs

Question 6

Difference in Profit (Absorption vs Marginal)

Answer 6

Change in Inventory × Fixed O/H per Unit