Costing systems: choose your question

What does one meal cost? Three answers

• The variable-coster says £3.10. The absorption-coster says £4.10. The catering manager prices batch J-77 at £3,182. All three are right — about different questions.
• A costing system is a choice of question. This lesson makes the choice visible.

Trace what you can, allocate what you must

• Direct costs attach by themselves: materials £1.20 a meal, direct labour £1.10. Overhead 制造费用 — variable £0.80 a meal plus the £4,200 fixed block — needs a driver.
• Nimbus Kitchen's pool: $0.80 \times 4{,}200 + 4{,}200 = £7{,}560$ over 2,100 direct labour hours (0.5 h/meal at normal capacity) → £3.60 an hour ✓.

Job costing: batch J-77

• Job costing 分批法 attaches costs to a batch: materials £950 + labour £1,800 + overhead $120 \times 3.60 = £432$ → £3,182 ✓.
• If actual overhead is £7,400 at 2,010 hours, applied is £7,236 → under-applied £164 — the gap reconciles on the costing income statement, it never vanishes.

Absorption vs variable income

• Absorption unit cost $= 3.10 + 4{,}200/4{,}200 = £4.10$ (fixed £1.00 a meal at normal capacity).
• Make 4,200, sell 3,000: absorption profit £7,200 vs variable £6,000 — the £1,200 gap is 1,200 unsold meals × £1.00 parked in inventory ✓. Production flatters absorption profit: know which arrow you read.

The driver is a pricing decision

• One labour-hour rate makes the hand-finished Alpha line carry the automation's cost. Two pools — machine-driven £4,536 over 1,800 hours (£2.52/h), the rest £3,024 over 2,100 labour hours (£1.44/h) — drop J-77's overhead from £432 to £173 ✓.
• Process costing 分步法 is the other pole: continuous lines average costs over volume. The system follows the production shape, not the accountant's mood.

Three costing slips

Recap