Absorption Costing Example

This video provides an example of how to calculate a company's operating profit or loss when Absorption Costing is used in Managerial Accounting.
To calculate operating profit or less with Absorption Costing, you subtract operating expenses from operating revenues. Fixed manufacturing overhead is treated as a product cost, which means that changes in inventory could affect the company's operating profit or loss. For example, if the company produces more units than it sells in a period, some of the fixed manufacturing overhead will be deferred to a future period instead of being expensed in the current period. This is a key distinction from Variable Costing; under Variable Costing, all fixed manufacturing overhead costs are treated as period costs and are expensed immediately.
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[@bobbycone2]

Great explanation. Where this gets dangerous is when executives or people higher up in the company see the up and down profits / losses per in thr different periods snd then either praises or disciplines the teams for doing good or bad because they don't understand how this absorbtion costing works. Company shows a big loss,, uh oh, we must write up people and fire someone, company shows a profit, well, we much praise all these people who had nothing to do with any of that profit. Ask me how I know. 🤦

[@skyegilbreth9833]

I have been stuck on an assignment for variable and absorption cost accounting. This video helped a bunch! Thank you!

[@deepankgarg5474]

@Edspira, While calculating the Direct Material used for 2020, why we didn't multiply the Direct Material cost with the Productuon units?

[@mexicanboy1231]

This video is great! Super explanatory. Can you do an example that takes into consideration production volume variances as well? Or any other variances that might occur?

[@deepankgarg5474]

While calculating the Direct Material used for 2020, why we didn't multiply the Direct Material cost with the Productuon units?

[@QuenchedGaming]

Thank god for this video lol my professor can't even speak english

[@bhindigosh1]

Excellent

[@ntcuong01ct1]

Dear Friends, I have a question: 1/ In the absorption costing system, I think the difference between Absorbed cost and full costing. Absored cost = direct material + direct labor + variable overhead manufacturing + fixed overhead manufacturing for a product or a brand or a product line. full cost= Absored cost + all corporate-related expenses for all product or all brand or all product line. Could you help?. Thank you.

[@ntcuong01ct1]

Dear Friends, I have a question: I want to setup Absorption costing of a product in year 2020. Next, I want to compare actual costing and Absorption costing in this product by month, year. How do I setup?.

[@michaelcampbell2390]

why is the cost being calculated on units sold and not units produced?

[@kingsley7872]

wondering the same aswell

[@anusiabanu7942]

How we do closing inventory? In AC statement

[@titan38417]

Thanks god bless you!! : )

[@nicolensadisa7040]

How do you get 200000 from fixed MOH

[@JM-lv2jp]

Hi there, I find it so confusing how you calculated the total FOH for 2021. I used the same method as you and we got the same exact answer for 2019 and 2020 but for 2021 I got 300,000 instead of 200,000. What I did was 150,000 / 5,000 = 30 x 10,000 = 300,000 which is how we solved for both previous years. I'm so confused.

[@johnpatton1652]

I did the same thing and was also confused but then I realized... You should only be contributing that $30 MOH per unit to the 5000 sales that are yet to be inventoried in 2021. The 5000 in beginning inventory have already been cost in the previous year manufacturing cycle at 5000*10=50,000 and the current year remaining sales of 5000 would be inventoried at 30 5000*30=150,000 in the current year manufacturing cycle. Add those together 50,000+150,000=200,000 and you get 2021 MOH.

[@nochu2906]

@@johnpatton1652 thank you so much!!! i was confused as well and your explanation helped me!!!

[@zakariabouras3683]

I thought the same, dividing 150k in 5k gives u 3 then that times 10k gives u 300k, the thing is that I’ve even tried different ways to see how he could’ve obtained those 150k+50k but it was impossible.

[@sanashurbajimzaik7784]

I DID NOT UNDERSTAND HOW WE CALCULATED THE OPERATING PROFITTTTTTTTTTT!!!!!!!

[@Sonidiboni]

just subtract every cost from sales revenue

[@truthrespect.9954]

hi bro

[@sanashurbajimzaik7784]

PLEASE HELP ME