Normal Production Levels Under FAS 151

12manage is hiring Management/MBA Students!

Absorption Costing > Forum Log in

Normal Production Levels Under FAS 151
Romina, Member
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.

Standarding Cost
EriChan, Member
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.

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
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.


  Do you wish to study further? You can learn more from the summary, forum, discussions, lessons, courses, training, instructions, expert tips, best practices and education sources. Register.  

Special Interest Group Leader

You here

More on Absorption Costing
Best Practices

Expert Tips


About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2018 12manage - The Executive Fast Track. V14.1 - Last updated: 22-6-2018. All names of their owners.