Lecture 6- Absorption Costing

Question 1

What is traditional absorption costing ?

Answer 1

It analyses and shares fixed production overheads by reference to the various production departments a business has

Question 2

What is activity based costing?

Answer 2

Analyses and shares fixed production overheads by reference to the various activities a business undertakes

Question 3

Name 2 pros of traditional absorption costing?

Answer 3

-Includes fixed costs to produce total cost
-Simpler to implement

Question 4

Name 1 con of traditional absorption costing?

Answer 4

-Result in fair arbitrary which could lead to flawed management decisions

Question 5

What 3 pros in activity based costing?

Answer 5

-More accurate method of absorption costing
-Improve competitiveness
-Forces closer examination of costs

Question 6

What are cons of activity based costing?

Answer 6

-Expensive
-Difficult for non financial staff to understand