PAR and absorption costing

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:27AM in AAT student discussion
Could anyone give me some tips on completing a Quarterly Budgeted Manufacturing and Trading Account using absorption costing to show the adjustment to Gross Profit for any over/under absorption of Fixed Production Overheads? I'm a bit confused! Thanks

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    PAR and absorption costing

    In general, if actual production is greater than budget there will be an over absorption of f. o/heads. In this case there needs to be a credit to P/L equal to the excess production * absorptin rate per unit. This is also equal to the Volume variance. The reverse is also true i.e. prodn. < budget gives under absorption and a debit to P/L.<BR><BR>This problem is caused by our treating a fixed cost as variable in order to achieve a full cost stock figure.

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