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Cost and selling price details for product Z are as follows.
Direct materials : $ 6 per unit
Direct labour : $ 7.50 per unit
Variable overhead : $ 2.50 per unit
Fixed overhead absorption rate : $ 5.00 per unit
Selling price : $ 30 per unitBudgeted production for the month was 5,000 units although the company managed to produce 5,800 units, selling 5,200 of them and inncurring fixed overhead costs of $ 27,400
What is the marginal costing profit for the month??
My answer
Sales (5,200 x $ 30 = $ 156,000)
– Variable production cost (5,800 x $ 16 = $ 92,800)
– FIxed overhead $27,400
= $ 35,800Actual answer
Sales (5,200 x $ 30 = $ 156,000)
– Variable production cost (5,200 x $ 16 = $ 83,200)
– FIxed overhead $27,400
= $ 45,400Dear sir, may i ask actually variable production cost is multiply by sales units ?
Your answer is wrong.
To get the profit, we subtract the cost of the goods sold from the sales.
5,200 were sold and therefore we need the cost of those 5,200. (They did make 5,800, but since only 5,200 were sold then there are 600 left in inventory, so the cost of the 5,200 is the cost of the 5,800 less the cost of the 600 still left.)
I suggest that you watch my free lectures on absorption and marginal costing, where this is explained. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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