CMA Study Group

Reason for the answer ?

  • 1.  Reason for the answer ?

    Posted 28 days ago
    As per absorption costing (gross margin) fixed cogs is taken as product cost so it will also increase if units sales are increased then why in the explaination it is written that it will have no effect

  • 2.  RE: Reason for the answer ?

    Posted 27 days ago
    The cost are fixed. They won't change.

    Michelle Morris

    Sent from my iPhone

  • 3.  RE: Reason for the answer ?

    Posted 27 days ago
    In Absorption costing fixed manufacturing costs are part of manufacturing , for valuation of Inventory it becomes part of cost...the more inventory , the more fixed manufacturing costs will be carried forward in subsequent period or in other words we can say fixed manufacturing cost is distributed among larger unit , present COGS will be less. So GP will increase, and in opposite situation GP will decreases and if there is no closing inventory,  full cost will be part of present fully charged during the period, not carried forward. No benefit.

    Corporate Officer