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# Absorption costing and marginal costing

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Draw up the Manufacturing and Trading accounts for the years ended 30 April 1999 and 30 April 2000, using

1.Absorption Costing
2.Marginal Costing

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This solution is comprised of a simple explanation of how to draw up the Manufacturing and Trading accounts using absorption costing and marginal costing

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The Baked Bean Butty Company has in the past used absorption costing in valuing stocks.
The company's new accountant feels that a marginal costing approach would be preferable. The following figures have been made available to you for the years ended 30 April 1999 and 30 April and 30 April 2000.

Year ended 30April 1999 30 April 2000
\$ \$

Unit Costs

Direct Materials 0.17 0.19

Direct Labour 0.12 0.14

Selling Price per Unit 0.90 0.95

Sales Units 220,000 240,000
Production Units 230.000 245,000

Opening Stock on 1 May 1998 was 8000 units at a total cost of \$0.50 per unit.

Draw up the Manufacturing and Trading accounts for the years ended 30 April 1999 and 30 April 2000, using

1.Absorption Costing
2.Marginal Costing

The Absorption Costing module will compare your budgeted hourly rate with an actual hourly rate and compute the under- or over-absorbed variances by cost center. The rates, along with the variances, are presented both in M-T-D and Y-T-D formats.
THE System captures employee time records from the Job Costing module by both regular and premium hours. The hours and dollars become the basis for the spreading of actual wage-related expenses back to the producing cost centers. Other factory overhead expenses can be spread back to the cost centers based on floor space, percent, or straight dollar amounts. General plant-related expenses then are spread back to the cost centers based on a percentage of the total for a total factory cost. At this point the module divides chargeable hours by cost centers into distributed factory cost by cost center for an actual hourly cost rate by cost center. The actual amount then is compared to the budgeted amount, and the variances are calculated.
Absorption Costing is very flexible. It allows you to establish distribution formats and reporting which suit your company's needs. The module is interfaced directly with General Ledger so that M-T-D expenses are drawn into the module automatically for distribution based on the selection of accounts by the client.
Upon installing Absorption Costing, certain decisions have to be made concerning how to format the distribution sequences, the allocation factors, and what general ledger account balances are to be used for distribution.
I've found an excellent website providing the steps to solving a question using the absorption costing method.
Sales
Cost of sales:
Opening stock
Production costs
Variable costs ...

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