Normal Production Levels Under FAS 151

Absorption Costing
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FAS 151 says judgment needs to be used to determine inventory costs under absorption costing. Could you please tell me how would you determine "normal production levels"? Thanks. (...) Read more? Sign up for free

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  EriChan, Student (MBA), China

Standarding Cost

Focus on standard cost with absorption costing.


Normal Production Level

Normal production level is a short term concept. For a period, say a year, it can be determined using the average of the two or three years projected levels of sales.
Actual production level over normal production level is a ratio used to allocate fixed costs into unit costs of production.

  Jagdish B Acharya, Consultant, India

Fixed Costs Should not Be in Inventory Cost

Overheads and fixed costs pose a big problem for allocation to inventory. By using the wrong formulas we end up having more problems from this inclusion. In any case for profit calculation they get accounted.
The advantage of this system will be improvement in ascertainment of fixed costs and that will improve efficiencies in organizations.


Variable Costing

If fixed costs are considered periodical cost. Tha (...)

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