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    jkdmwilson's Avatar
    jkdmwilson Posts: 1, Reputation: 1
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    #1

    Apr 11, 2014, 03:35 PM
    Cost management - absorption and variable income
    I am having a lot of trouble trying to figure out absorption and variable income. I am going to include the problems I need to work on. I did get the first one correct but after that I have been completely lost. I have looked in the book but do not understand it because it does not give proper examples. Please help.
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    2. paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
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    Apr 12, 2014, 08:36 PM
    Absorption costing endeavours to calculate cost by distributing manufacturing costs over the number of units of production.

    Direct material
    Direct labour
    Overhead costs (indirect labour, indirect materials, various other costs of production)
    fixed manufacturing costs

    form the base for this calculation which is then divided by expected volume of production to determine unit cost

    Variable or direct costing identifies only those costs which vary with volume as product costs and all other costs will be recovered if sufficient volume is attained.

    Direct material
    Direct labour

    form the basis of this calculation.

    the other costs are deducted from whatever contribution sales 'less direct costs might leave
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