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Hi sir
i have question below to ask you
a company sold 56000 units of its single product for a total revenue of $700,000. finished inventory increased by 4000 units in the period . cost in the period were as follws :variable production $3.60 per unit
fixed production $258,000 (absorbed on the actual number of units )
fixed non production $144,000using absorption costing what was the profit for the period ?
Sir please answer it in a simple way .
Thank you !!!Have you watched the free lecture on absorption costing????
If they sold 56000 units, and inventory increased by 4000 units, then they must have produced 60,000 units.
So the absorption rate is 258,000 / 60,000 = 4.30 per unit (we only absorb production overheads.
So the total production cost per unit is 3.60 + 4.30 = 7.90.
So the standard cost of sales is 56,000 x 7.90 = 424,400This gives a gross profit of 700,000 – 424,400 = 257,600
Subtract the non-production overheads of 144,000, and we are left with a profit of 257600 – 144000 = 113,600
Hi Sir
Having some trouble with this question can you please help me, thanks.A company uses standard absorption costing. Its fixed overhead absorption rate is $8 per machine hour and each unit of production should take 3 machine hours. Last year there was an opening inventory of finished goods of 4000 units. They produced 30000 units and sold 25000 units. 90000 machine hours were used for production, and the total fixed overheads were $700000. What was the amount of the over/under absorption of fixed overheads?
The under/absorption of fixed overheads is the difference between the actual fixed overheads (700,000) and the overheads absorbed i.e. actual machine hours worked (90000) multiplied by the absorption rate ($8).
The free lecture on absorption costing may be useful for you.
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