Page 79 - BA2 Integrated Workbook - Student 2017
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Marginal and absorption costing
Absorption costing
The absorption cost of a product is the full cost of producing a unit of
the product. This will include the total of the variable costs, including
direct materials, direct labour, direct expenses and variable overheads
and fixed production overheads.
In the previous chapter we looked at how production overheads are absorbed into
each cost unit.
3.1 Absorption costing profit statement
Using the same example as above:
Absorption costing profit statement
ABC XYZ Total
$ $ $
Selling price 200 180
Direct materials 30 50
Direct labour 40 60
Variable overheads 10 15
Fixed overheads (W1) 30 60
–––––– ––––––
Profit per unit 90 (5)
× 400 × 250
–––––– ––––––
Total profit 36,000 (1,250) 34,750
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