Hi!
i was going through the chapter on marginal costing in cost management. i have a query here. i am not able to grasp the significance of under and over absorption of fixed overheads. why do we add under absorption and vice versa for over absorption?
can anyone throw some light on this matter?
CA Ram
(student)
(369 Points)
Replied 08 August 2008
| Originally posted by :Ankita Dev | ||
| " | Hi! i was going through the chapter on marginal costing in cost management. i have a query here. i am not able to grasp the significance of under and over absorption of fixed overheads. why do we add under absorption and vice versa for over absorption? can anyone throw some light on this matter? |
" |
for reconcilling the difference in profits as per absorbtion costing and marginal costing. in absorbtion costing, there may be some under or over absorbtion, whereas in marginal we charge fixed cost in full.
Rajesh
(Service)
(181 Points)
Replied 08 August 2008
Under marginal costing we apportined the cost over various over head which is standardised by using standard overheads and then we compare actuals with standard.
G.M.Muthu
(Associate)
(54 Points)
Replied 10 August 2008
Over or under absorption is nothing but reconciling Differances between estimated overhead cost and actual overhead cost
and also we can take it in different way differance between marginal costing(i.e method accounting for fixed& variable ) and absorption costing(i.e method of accounting for cost direct & Indirect)
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