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Hi sir,
Please explain me about this question
A Co makes hats and it expected to produce 25000 hats during the year which would be expected to incur $125000 in fixed costs. The total cost of each hat is $30(fixed cost included) and the Co can sell them for$40 each. Sales during the year is 15000 hats from a production volume of 20000. Actual fixed costs were $80000 and there was no opening inventory. What is the marginal costing net profit for the year?Firstly i calculate the profit by marginal costing
Sale 600,000
pro.CoS 600,000
Cl. Inventory -150000
So i got contribution $150000 and profit $70000
Thereby marginal costing profit= $70000-($5000×$5)=$45000
Am i right sir?No – you are not right.
What are you attempting questions for which you do not have an answer – there is no point. You should be using a Revision Kit from one of the ACCA approved publishers – they are exam standard questions and have answers and explanations.The standard fixed cost per unit is $125,000/25,000 = $5.
Since the cost of $30 included the fixed cost, then the marginal cost is $30 – $5 = $25 per unit.Therefore the contribution per unit =40 – 25 = $15 per unit.
Therefore the total contribution = 15,000 units x $15 = $225,000.
Therefore the profit is 225,000 – 80,000 = $145,000.
As far as the absorption costing profit is concerned, the only difference ever from the marginal costing profit is the change in inventory multiplied by the fixed costs per unit.
The inventory has increased by 5,000 units, and therefore the absorption profit will be higher than the marginal profit by 5,000 x $5 = $25,000.I do suggest that you watch my free lectures where all of this is explained in full.
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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