[swwong1]

Hi All,

I am bit confused between the reconciliation of the profit between the periods.
Please see link below:

https://books.google.com.hk/books?id...osting&f=false

Why do we deduct both under and over absorption, can anyone give further details?

Thanks

[paraclete]

Unalbe to veiw your attachment, under or over absorption is an accounting exercise, whereas calculation of profit is a time based exercise which must not be distrorted by the costing system used

[swwong1]

Attachment 48276

Please see attached file - bit confused with the explanation.

[paraclete]

Still unable to view attachment. Under and or over absorption must be charged to the P/L in order to accurately determine profit for a period, you cannot carry this forward to another period as it has no realisable value

[swwong1]

For absorption costing, major part of profit difference is due to sale volume and adjustments for under/over absorption in each of the 2 periods.

Comparing the profit from Month 1 to Month 2:
- decrease in sales volume in month 2 will reduce the profit
- over-absorption in June deducted
- under-absorption in July deducted

**The over absorption for June made profit higher that month, so it was deducted.

I am a bit confused with why both absorption is deducted.

[paraclete]

I think you are dealing with terminology and a question of whether we are crossing a balance date. Over absorption means the cost of sales has been overstated and therefore adjustment should be made. Under absorption means the cost of sales has been understated and therefore adjustment must be made