Class notes
Absorption Costing notes
- Course
- Institution
Notes for absorption costing from management accounting. a really nice overview and also has examples
[Show more]
Seller
Follow
eashanadeem1
Content preview
Absorption costingClassifying costs
There are 2 ways to classify costs
- Direct vs indirect (overheads)
- Fixed vs variable
Definitions
- Overhead (indirect cost) can’t be directly allocated to a product or service
- Fixed cost doesn’t vary with the amount of product (meals) or services you provide
Example – trying to work out how much a meal costs
Direct Indirect Fixed Variable
A lobster X x
Electricity X x
for cooking
Rent x x
Head chef x x
salary
What gets included in the cost of a product or service?
- Direct costs
- All indirect costs – whether they are fixed or variable
- As long as the costs relate to PRODUCTION
How do we divide up the indirect costs (overheads) between products?
- In the example above, we have to spread out the total cost of electricity, rent and
the head chef’s salary to products (meals served)
- What basis could we do this on?
o Flat rate per meal?
o How many hours the meal takes in the oven (i.e. oven hours)
o How many hours the meal takes to prepare (i.e. labour hours)
- Sometimes different departments use different bases
o E.g. admin department costs like rent might use number of meals and kitchen
department costs like electricity and head chef salary might use oven hours
Example
, Answer
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller eashanadeem1. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.87. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53249 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now