costing

👉DETERMINING OPTIMUM LEVEL OF ACTIVITY


In marginal costing, the optimum level of activity is determined by finding the point where marginal cost (the cost of producing one more unit) equals marginal revenue (the revenue from selling one more unit), maximizing profit. 



🔰ABSORPTION COSTING🔰


Absorption costing, sometimes called “full costing,” is a managerial accounting method for capturing all costs associated with manufacturing a particular product. All direct and indirect costs, such as direct materials, direct labor, rent, and insurance, are accounted for when using this method


Absorption costing is a method of costing that involves assigning all manufacturing costs, both fixed and variable, to the products or services produced. This means that the cost of a product includes not only the direct costs, such as labor and materials, but also the indirect costs, such as overheads and fixed expenses.

Key Features of Absorption Costing
1. *Inclusion of Fixed Costs*: Absorption costing includes both fixed and variable costs in the cost of a product.
2. *Allocation of Overheads*: Overheads, such as rent, utilities, and salaries, are allocated to products using a predetermined overhead rate.
3. *Full Costing*: Absorption costing is also known as full costing, as it involves assigning the full cost of production to the product.


Example
A company produces 10,000 units of a product, with a total fixed cost of ₹100,000 and a total variable cost of ₹500,000. The overhead rate is 10% of the total variable cost.

Absorption Cost per Unit = (Total Fixed Cost + Total Variable Cost + Overhead) / Number of Units
= (₹100,000 + ₹500,000 + ₹50,000) / 10,000
= ₹65 per unit

In this example, the absorption cost per unit includes the fixed cost, variable cost, and overhead, providing a full cost of production.

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