200112050 Ilter KARADAG

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Comparing Direct and Absorption Costing

• 200112050 Ilter KARADAG
• 200312032 Peykan SAMLI
• 200412052 Neslihan G. ÖZTÜRK

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THE GOAL OF THE ARTICLE

• Comparison of direct costing (DC) and absorption
  costing (AC) over linear programming
• Importance of linear function about cost
  determinations
• Production and sales volume decisions
• Illustration of a DC and AC (solve with Excel)

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WHAT IS DIRECT COSTING?

• To affect the costs as directly related
• Direct costs
• direct materials
• direct labor
• direct expenses
• DC profit is solely a function of the sales level

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WHAT IS THE ADVENTAGES OF DIRECT COSTING ?
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WHAT IS ABSORPTION COSTING?

• Function of both sales and production levels

Assumptions ?
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ABSORPTION COSTING

• All Overhead Costs

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WHAT IS THE ADVENTAGES OFABSORPTION COSTING ?
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Cost of inventory on hand
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GENERAL FORMULATION OF AN LP MODEL

• DVs

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Constants
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Parameters
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LINEAR PROFIT EQUATIONS

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CONSTRAINTS
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An Illustration

• Company
• product 1 product 2
• department L department P

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Production Capacity
Table - 1
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Selling Price Variable Costs
Table - 2
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Fixed Costs
Table - 3
Table - 4
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Linear Programming Model
s.t.
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Changes for Each Period

• For period 2

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Changes Cont.

• For Period 3

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Changes Cont.

• For Period 4

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Changes Cont.

• For Periods 5, 6 and 7

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SOLUTION

• Excel solver is used
• Given parameters are used
• Different values of each period
• CALCULATION OF DC AC VALUES IN EXCEL TABLEAU

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CONCLUSION

• Comprehensive costing Absorption costing
• Effect of LP for DC AC calculations
• Importance of dual solution for DC AC