1 Activity based costing
1.1 Introduction – absorption cost
In F2 we saw how to determine a cost per unit for a product. Key issues of relevance here are the following:
Firms have the choice of two basic costing methods – marginal costing and absorption costing.
To enable this, all overheads must first be allocated/apportioned/reapportioned into production departments, again using a suitable basis (e.g. rent on the basis of floor area).