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A company uses a standard absorption costing. Its fixed overhead absorption rate is 8 per machine hour and each unit of production should take 3 hours. Last year there was an opening inventory of finished good of 4000. They produce 30000 and sold 25000. The actual profit last was $526000.
What would have been earned under marginal costing.I worked out this question following below rule.
Actual profit 526000
Closing inventory 5000
Less Opening inventory 4000Increasing of inventory 1000 *24 24000
Profit under marginal costing 502000
The mock exam provides 406000 as correct answer that I suppose it does not take into consideration the opening inventory. Could you please help me to understand.
Thanks
Gabbi
The error in your working is that the closing inventory is not 5000!
If the opening inventory is 4,000 and they produce 30,000 then that means they have 34,000. If they sell 25,000 then that leaves them with closing inventory of 9,000.
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