Normal Production Levels Under FAS 151

Standarding Cost
EriChan, Member
Focus on standard cost with absorption costing.

Normal Production Level
Benhoumeur
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.

Fixed Costs Should not Be in Inventory Cost
Jagdish B Acharya, Premium Member
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
Benhoumeur
If fixed costs are considered periodical cost. That is, they are written off during the accounting period; then we will be using "variable costing". In this case, the contribution margin should be greater to fixed costs; in the long run at least.