Absorption and marginal profit reconciliation

Absorption and marginal profits differ because fixed production overhead is carried in inventory under absorption costing but expensed in the period under marginal costing. With a constant fixed-overhead rate and consistent assumptions, the difference equals the change in inventory units multiplied by fixed production overhead per unit. Increasing inventory normally makes absorption profit higher; decreasing it normally makes absorption profit lower. Adjust carefully if opening and closing rates differ or other reconciliations are required.