[mayur3331]

Hi Chiris,,

I would like to thank you for your lectures as they helped me pass F1 first time and with no accounting background… I scored well beyond my expectations.

Regards

Mayur

[mayur3331]

P2-D2 wrote:I wanted to thank you Chris and the OpenTuition team for the good stuff that really helped me to get through F1 exam.

Hi Chris,

I would like to thank you for your lectures which have helped me pass F1 first time. My background is non-accounting and just because of your guidance was able to clear.

On to OCS now ..

Thanking you

Regards

Mayur Mohanpurkar

[mayur3331]

Hi Chris,

Thank you for your help and revert. I am using kaplan Study text F1 and this question is from Test your understanding 6 and Q1.

Thank you

Regards

Mayur

[mayur3331]

Even i am confused with this problem…
imited manufactures a single product, the budgeted selling price and variable cost details of which are as follows:

$/unit

Selling price $15.00

Variable costs per unit:

Direct materials $3.50

DIrect labour $4.00

Variable overhead $2.00

Budgeted fixed overhead costs are $60,000 per annum charged at a constant rate each month.

Budgeted production is 30,000 units per annum.

In a month when actual production was 2,400 units and exceeded sales by 180 units, identify the profit reported under absorption costing:

My answer comes 7770

Sales(2220*15)——- 33,300

COGS

Cost of production

(2400*11.5)———–(27600)

Less CI

(180*11.5)————-(2070)

Total——————-(25530)

Gross profit——-7770

and right answer is as per below

Calculate marginal costing profit first:

(Contribution per unit x no. of units sold) – fixed costs = MC profit

($15 – $3.5 – $4 – $2) x (2,400 – 180) – $60,000 / 12 – MC profit

$5.50 x 2,220 units – $5,000 = $7,210

Then calculate the profit difference between marginal and absorption costing:

Difference = OAR x difference in closing and opening inventory units

= $60,000 / 30,000 x 180

= $2 x 180 = $360

As production is for a higher quantity than sales, closing inventory must be larger than opening inventory and absorption costing profit must be higher than marginal costing profit

Absorption costing profit = $7,210 + $360 = $7,570

Regards

Mayur

[Author]

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