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The following budgeted information relates to a manufacturing company for next period:
Units $
Production: 14,000 Fixed production costs: 63,000
Sales: 12,000 Fixed selling costs: 12,000The normal level of activity is 14,000 units per period.
Using absorption costing the profit for next period has been calculated as $36,000
What would be the profit for next period using marginal costing?
A $25,000
B $27,000
C $45,000
D $47,000The answer for the above question is B.
I’m a little confused here Sir, when calculating the oar.
Its budgeted overheads/ budgeted level of activity. So why is that fixed selling cost is not included when calculating the oar. Budgeted overheads is calculated only taking fixed production cost to derive the oar $4.5please clarify.
We never absorb selling costs – they are not included in the valuation of inventory. Only the production costs are included in the valuation of inventory when using absorption costing.
I do suggest that you watch the free lectures on absorption and marginal costing. The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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