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Variable production overhead 2
Fixed production overhead 5
Variable selling cost 1
Fixed selling overhead 2
Sales price 20
Both types of fixed overheads were based on a budget of 10,000 cakes a year.
In the first year of production, the only difference from the budget was that company produced 11,000 cakes and sold 9,000.
All costs and revenues were in line with the levels budgeted per unit.
Calculate the profit made under an absorption costing system and a marginal costing system.
I have calculated it and my absorption costing is 46270 is that correct?
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and workings!
The correct answer is not $46,720. It is $38,000.
The standard profit is 9,000 x $8 per unit = $72,000.
There is an over-absorption of fixed production overheads of (11,000 – 10,000) x $5 = $5,000
The selling costs are: variable 9,000 x $1 = $9,000; and fixed 10,000 x $2 = $20,000
So the profit is 72,000 – 5,000 – 29,000 = $38,000
Do watch my free lectures on this, where I work through a very similar example.
The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.