Fy-bms Presents Group -3 Adiv

Job Order Costing

Types Of
Absorption
ABC Costing

Costing

Process Costing

Record all costs. Classify all the costs. Direct cost are directly linked to the out put Allocate the Indirect costs to the service departments of a business. Reallocate costs form support departments to production departments.

Calculate an overhead recovery rate.

Absorb both the direct and indirect costs (overheads) into individual products.

Fixed costs are recovered-fixed costs are incurred in order to make output to make output so it is only fair to charge all output with a share of these costs. Ensures that costs are fully recovered.

Encourages costs consciousness.

It is fair in that it uses appropriate methods for each overhead.

Identifies total costs- this is useful where pricing is on a cost plus basis.

Identifies the profitability of different products and services.

All methods are arbitrary- no method of diving up fixed costs is satisfactory. Absorption cost is true only at the level of activity at which it was calculated. Danger of under or over absorption of overheads. Complex, time consuming and expensive. Potentially misleading guide to profitability of products. The capacity levels chosen for overhead absorption rates are based on historical information and are open to debate.

Total Cost Statement

Direct materials + Direct Labor
= Prime cost

+Direct Expenses

+factory Overheads
= Factory Overheads

+Selling and distribution overheads

+Administrative cost

+Finance Cost

= Total cost

Sale Direct Material (Less) Cost Of Goods Sold Direct Labour Variable FOH Fixed FOH

Cost Of Goods Manufactured

Add: Finished Goods Opening Total Finished Goods Available

Less: Finished Goods Ending

Cost Of Goods Sold Adjustment of Fixed (over)/ under applied Factory overhear Gross Profit Cost Of Goods Sold (Actual) Less: Marketing and administrative Expenses Variable marketing and admin. Expenses Fixed marketing and admin. Expenses Net Income / Profit

Absorption costing

Fixed manufacturing overheads are treated as product costing. It is believed that products cannot be produced without the resources provided by fixed manufacturing overheads

Marginal costing

Fixed manufacturing overhead are treated as period costs. It is believed that only the variable costs are relevant to decisionmaking. Fixed manufacturing overheads will be incurred regardless there is production or not

Absorption costing

High value of closing stock will be obtained as some factory overheads are included as product costs and carried forward as closing stock

Marginal costing

Lower value of closing stock that included the variable cost only

Calculated by taking the overhead for a particular cost center and dividing it by number of units of the absorption base. Knowing your area's Absorption Rate, helps to track trends. Understanding the market and where it is headed is part of our job as real estate professionals. Absorption rate is NOT an exact science. Figuring it is based on the premise that one will be looking for a TREND. It is advised to consistently do the numbers each month, to be able to track a trend. Getting Starting... You need to know 2 figures. 1) How many listings are currently on the market? 2) How many listings sold last month? You will be counting under-contract or pending as listings, since they are not SOLD yet. Multiple the number of sold last month by 12 (months). Divided by the current listings equals # of Units that would sell each week. Divide the # or units that should sell each week into the number available = absorption rate.

Cost Unit Absorption Rate = Production cost center overhead Number of cost units

Direct labor hour absorption rate = Production cost center overheads Number of labor hours

Machine hour overhead absorption rate = Production cost center overheads Number of machine hours Direct wage percentage overhead absorption rate = Production cost center overheads x 100 Direct wages