chapter2absorptionandmarginalcosting - Chapter 2 Absorption...

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Chapter 2 Absorption and marginal costing Topic List Syllabus reference 1 The problem of overheads 12.1 2 A revision of absorption costing 12.1 3 Overhead apportionment 12.1 4 Overhead absorption 12.1 5 Marginal costing 12.1 6 Reconciling the profit figures given by the two methods 12.1 7 Absorption costing and marginal costing compared 12.1 Introduction As we saw in the previous chapter, cost accounting is used to determine the cost of products, jobs or services (whatever the organisation happens to be involved in). Such costs have to be built up using a process known as cost accumulation. In your earlier studies you will have learnt how to accumulate the various cost elements which make up total cost. It you have forgotten, the diagram of an absorption costing cost accumulation system on the following page should log your memory. Remember that under a marginal costing system the production overhead absorbed would be variable production overhead only. In this chapter we will be both building on your existing knowledge and seeing how the techniques which you have already learned can be applied in more complex situations. This is quite a long chapter but much of what we cover will be familiar to you so working through it won't be too arduous. 1 The problem of overheads If a company manufactures a product, the cost of the product will include the cost of the raw materials and components used in it and cost of the labour effort required to make it. These are direct costs of the
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