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Dundee makes cakes for whicg the budgeted profit per unit is as follows:
Materials: $2
Labour: $3
Variable Production Overhead: $3
Fixed Production Overhead: $4
Variable selling Cost: $1
Fixed Selling Overhead: $2
Profit: $5
Selling Price: $20Both types of fixed overheads were based on a budget of 10,000 cakes a year.
In the first year of production, the only difference from the budget was the Dunde
11.000 cakes and sold 9.000Whats The profit made under Absorption And marginal Costing??
Please do not simply type out full questions and expect to be provided with a full answer. You must have an answer in the same book in which you found the question, and so in future ask about whatever it is in the answer that you are not clear about.
The budgeted marginal cost per unit using absorption costing = 2 + 3 + 3 = $8
Therefore the total contribution is 9,000 x (20 – 8 – 1) = $99,000The budgeted fixed production overheads = 10,000 x $4 = $40,000.
The budgeted fixed selling overheads = 10,000 x $2 = $20,000.Therefore the marginal costing profit = 99,000 – 40,000 – 20,000 = $39,000
The absorption profit will be different by the change in inventory multiplied by the fixed production overheads per unit.
Therefore the absorption profit will be 39,000 + (2,000 x $4) = $47,000.
All of this is explained in my free lectures on marginal and absorption costing. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
Why budget fixed costs are subtracted from the Contribution ( 99,000 – ( 40,000 + 20,000) ) instead of subtrating actual cost.
I cross-checked with other questions actual costs are reduced from the contribution?
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