The following information relates to a manufacturing company for the next costing period:
*Fixed production cost _$125 000
*Fixed selling costs_$25000
The profit for the period using absorption costing would be $15000 less than if marginal costing was used.
What is the expected sales volume in the period?
please help and try explain in detail
The profit difference of 15000 must relate only to differences in inventory valuation because of mc/tac.
Fixed overhead absorption rate per unit is 125000/25000 =5 (ignore selling costs as these are not absorbed into inventory).
15000/5 =3000 units. Because tac profit is less than mc profit, inventory must have fallen (lower fc,carried forward in closing invnetory and more,charged to cost of sales).
Therefore, sales volume must be 3000 greater then units producedmso that inventory falls.
Sales volume = 25000 + 3000 = 28000.
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