Variable and Full Absoprtion Costing

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:32AM in AAT student discussion
Can anyone explain to me the difference between variable costing and full absorption costing? :?:

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Variable and Full Absoprtion Costing

    The variable cost of a product is only made up of the extra (or variable) costs of making it.

    The full absorption cost includes the variable costs plus an amount of fixed overhead.

    For example, you spend an hour making 12 sandwiches.

    The variable cost of each sandwich is made up of the bread butter filling and your time.
    - and one more sandwich would be the same basis (the extra costs incurred)

    The full absorption cost of each sandwich would include all the same costs just mentioned PLUS you would absorb a certain amount for the fixed overheads. (things that have to be paid irrespective of how many sandwiches you produce such as rent or electricity or the depreciation of refrigeration equipt)


    sandy.hood@chichester.ac.uk

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