Decision and Conteol Help!

dee21

Hey Guys,

I am sitting my Decision and Control exam for the third time and could really do with some help. I am currently looking at AAT question bank Task 5.3 (attached) when a question asks to prepare the operating statement for actual production.can someone please explain to me the difference between operating statement and abortion costing? As I assume all cost are included in both?

crispy

Hello,

The question is a standard costing reconciliation from budgeted to actual for a company who incorporate fixed overheads into their costs.

I was feeling fed-up at work so thought I would get my brain moving and have a go myself. Have attached with my answer, hope it is of some use if you can understand my bad hand writing

dee21

Hello Crispy,

Many thanks for your answers they were a great help. I am really sorry to have to ask but is absortion costing not done the exact same way? Fixed over head are incorporated into the cost?

I feel so silly asking but I just cant see the difference between a standard cost and abortion costs? my understanding would be if this questions was asked to be completed by using absorption costing we would end up with the same answer?

crispy

Hi Dee,

If the company was using say marginal costing then there would be no variances for fixed overheads, since they are not being incorporated (absorbed) into the unit cost - I doubt however you would ever see a question like this.

Absorption costing is a costing method which includes a portion of fixed production overheads into a cost unit, standard costing is the comparison of a standard (budget) costs to actual results to allow for variance analysis.

dee21

Hey Crispy

so this question is using absorption costing?