For the February total Contribution, im getting 103,500 however, using your method above, im getting 153,500?
There is no closing inventory for Feb as the opening is 2000 units (closing from Jan) plus 9500 produced gives me total inventory of 11,500 and then we sell 11,500 leaving no inventory.
Where am i going wrong?
February;
Revenue – 11500 units x £25 – £402,500 CoS; Production – 9500 units x £25 (from the cost card) – £237,500 no closing inventory total CoS – £237,500
Gross profit – 165,000
Less Variable Selling Costs – (£11,500)
total Contribution – £153,500
However, if we take the 11500 units sold and multiply by the contribution/unit (£9) i should be getting a TC of £103,500 ?
Could you please confirm- When calculating profit by Marginal costing, we will take into account Only the change in inventory unlike Absorption costing wherein inventory was considered in both the months i.e Jan and Feb?
In both marginal and absorption costing, opening and closing inventories are present. The only difference is that absorption inventory values are higher by the fixed production overhead which is included.
Therefore, the change in inventory is only considered when reconciling the two. To calculate the fixed overheads included in inventory (the difference between the profits of the two methods) you find the number of units change (instead of calculating seperately for opening and closing inventory) and multiply it by the overheads per unit.
Hope that helps, and sorry if it was a bit rambly.
Hi,
For the February total Contribution, im getting 103,500 however, using your method above, im getting 153,500?
There is no closing inventory for Feb as the opening is 2000 units (closing from Jan) plus 9500 produced gives me total inventory of 11,500 and then we sell 11,500 leaving no inventory.
Where am i going wrong?
February;
Revenue – 11500 units x £25 – £402,500
CoS;
Production – 9500 units x £25 (from the cost card) – £237,500
no closing inventory
total CoS – £237,500
Gross profit – 165,000
Less Variable Selling Costs – (£11,500)
total Contribution – £153,500
However, if we take the 11500 units sold and multiply by the contribution/unit (£9) i should be getting a TC of £103,500 ?
Hi there, thank you for explaining it so well 🙂
Could you please confirm- When calculating profit by Marginal costing, we will take into account Only the change in inventory unlike Absorption costing wherein inventory was considered in both the months i.e Jan and Feb?
Hello,
Not a lecturer, but think I can help.
In both marginal and absorption costing, opening and closing inventories are present. The only difference is that absorption inventory values are higher by the fixed production overhead which is included.
Therefore, the change in inventory is only considered when reconciling the two. To calculate the fixed overheads included in inventory (the difference between the profits of the two methods) you find the number of units change (instead of calculating seperately for opening and closing inventory) and multiply it by the overheads per unit.
Hope that helps, and sorry if it was a bit rambly.