- August 12, 2022 at 9:21 am #662941wilderMember
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I have watched the lectures but I still have some doubts.
The BPP book mentions that “if inventory levels decrease, absorption costing will report a higher profit, because as well as the fixed overhead incurred. fixed production overhead which had been carried forward in opening inventory is released and is also included in cost of sales”
Somehow the above statement has confused me.
1. Please shed some light on the above statement.
2. To know whether the inventories are decreasing/increasing – do we compare the production and sales OR do we compare the opening inventory and the closing inventory OR do we add the opening inventory with the production and then compare it with sales ?
Please assist.August 13, 2022 at 8:08 am #662997John MoffatKeymaster
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1. If you look again at the examples in my lectures then you will see how this is happening.
2. If they produce more than they sell, then the inventory will increase. If they sell more than they produce then the inventory will decrease 🙂
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