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In marginal costing chp we have one sum wer we need to find out profit by way of absorption costing method n marginal costing method n reconcile it. In absorption costing..in case of fixed overheads..dat under/(over) absorption effects should it be given directly to fixed overheads (supplementary rate method) or to cost of sales? And if both methods are appropriate which one to follow wen? bcoz by both d methods profit will differ.
Replies (8)
Profit statement under Absorption costing system is as follows...1st find the net profit..call this as Profit before adjustment of absorption differences..then adjust under/over absorption of fixed overhead..and name final figure as profit.
There is always be difference in profit under two methods. Hope u knw the reasons for this. Later u have to reconcile that difference under two methods. Which method to follow and all, depends on type of the question asked in exam.
Else u can adjust in fixed overhead itself but u have to shown separately. Otherwise u can adjust that amount just before the profit.
It means either of both d ways we can do it na?
Yes, but they wil ask in which method to solve it.
M asking about d treatment of under absorption in absorption costing. Normally they don't specify in ques whether we need to do by supplementary rate method or give effect to adjust before profit
Give effect to adjust before profit.
Okay thank you so much
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