Topic 5 of 6 · Form 6
Cost and management accounting
Absorption costing (overhead allocation, apportionment, reapportionment of service department costs, overhead absorption rates, under- and over-absorption); marginal costing (contribution, break-even, margin of safety, contribution to sales ratio); activity-based costing.
Notes for this topic 1 file, in order
Create a free account to download PDFs.
Costing methods
Absorption costing (overhead allocation, apportionment, reapportionment of service department costs, overhead absorption rates, under- and over-absorption); marginal costing (contribution, break-even, margin of safety, contribution to sales ratio); activity-based costing.
Worked example: Fixed costs US$60 000; selling price US$25; variable cost US$15. Find break-even, C/S ratio and units for a profit of US$20 000.
Contribution = 10 → BE = 6 000 units; C/S = 40%; target units = 80 000 ÷ 10 = 8 000
Decision-making
Make or buy, special orders, limiting factors (rank by contribution per unit of the scarce resource), discontinuing a product; relevant costs and opportunity costs.
Reconciling profits
Absorption profit − marginal profit = change in inventory × fixed overhead per unit.
Check yourself
- Distinguish between absorption and marginal costing.
- Overheads US$90 000; machine hours 15 000. Find the OAR.
- When should a special order below the normal price be accepted?
Show answers
- Absorption costing charges fixed overheads to units; marginal costing treats fixed costs as period costs.
- US$6 per machine hour
- When it covers variable costs (positive contribution), capacity is available and it will not affect regular sales.
Questions about this topic (0)
No questions about this topic yet.
Sign in or create a free account to join in.