All about Absorption Costing
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Normal Production Levels Under FAS 151
Romina, Other, Spain
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.
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Standarding CostEriChan, Student (MBA), China Focus on standard cost with absorption costing. |
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Normal Production LevelBenhoumeur, Algeria 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. |
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Fixed Costs Should not Be in Inventory CostJagdish B Acharya, Consultant, India 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. |
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Variable CostingBenhoumeur, Algeria 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. |
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