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HELLO SIR,
A company sold 56000 units of its single product for a total revenue of $700,000. finished inventory increased by 4000 units in the period . cost in the period were as follws :
variable production $3.60 per unit
fixed production $258,000 (absorbed on the actual number of units )
fixed non production $144,000using absorption costing what was the profit for the period ?
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Sor the answer is 113600
7000000- (56000×7.90)= 442400-144000= 113600
MY QUESTIONN IS SINCE PROFIT UNDER ABSORPTION COSTING IS ASKED SO THE UNDER ABSORBED OR OVER ABSORBED FIXED COSTS SHOULD SUBTRACTED AND ADDED RESPECTIVELY- Topics: 65
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So the answer should be then
Fixed overheads
Absorbed overhead = ( actual no of units i.e 60000( 56000+4000) ,60000× 4.35)= 261000
Actual overhead = 258000
I.e 3000 over absorbed
So profit under absorption costing will be 700000-(56000×7.90)442400- 144000+3000= 116600( in marginal costing we subtract the actual fixed overhead , subtract the variable cost only and in absorption costing we add or subtract the over or under absorbed fixed overheads and subtract the total cost .)
Sir could you please explainThere is no under or under absorption of overheads because the question tells you that the actual overheads are $258,000 and that they are absorbed on the actual number of units (which is the 60,000 that were produced).
So the fixed overheads per unit are $4.30, therefore the full cost per unit is $7.90, and the answer in your book is correct.
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THANK YOU SO MUCH SIR
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