ACCA PAPER F2 MANAGEMENT ACCOUNTING 管理会计考试讲义笔记 08 Overheads And Absorption Costing.doc

CH8 OVERHEADS AND ABSORPTION COSTING 　　Absorption costing is a method of accounting for overheads. It is basically a method of sharing out overheads incurred amongst units produced.　　1.OVERHEADS制造费用　　Overheads is the cost incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department. 　　Overhead is actually the total of the following:　　Indirect materials 　　Indirect labor　　Indirect expenses　　　　The total of these indirect costs is usually split into the following:　　Production overhead　　Administration overhead　　Selling and distribution overhead In cost accounting there are two methods of dealing with overheads:　　Absorption costing　　Marginal costing　　2. THE OBJECTIVE OF ABSORPTION COSTING The objective of absorption costing is to include in the total cost of a product an appropriate share of the organization’s total overhead. An appropriate share is generally taken to mean an amount which reflects the amount of time and effort that has gone into producing a unit or completing a job.　　Absorption costing is a method for sharing overheads between different products on a fair basis.　　Overhead cost sharing: why? Knowledge of the costs of different end products or services may be useful to a business: in providing information on their relative costs and efficiencies,. which enables costs to be examined and challenged; in the valuation of stocks of work-in-progress and finished goods; in setting selling prices in industries where cost plus applies, or in providing a guide to the selling prices that are required for a business to make a profit; in establishing the profitability of each product/service, which may be useful both for operational （tactical） and longer term （strategic） planning. 　　For a complete cost picture, all overheads have to be shared out. The process of sharing out overhead costs, along with the attribution of direct costs, to end