- This topic has 3 replies, 3 voices, and was last updated 8 years ago by
.
- Posts
Sir,
This is a 2015 exam paper. I have tried a lot of times, still can’t get the way to get the answer.
Question: A company manufactures and sells a single product. In two consecutive months the following levels of production and sales (in units) occurred:
Month 1 Month 2
Sales 3800 4400
Production 3900 4200The opening inventory for Month 1 was 400 units. Profit or losses have been calculated for each month using both absorption and marginal costing principles.
Which of the following combinations of profits and losses for the two months is consistent with the above data?
Absorption costing profit (loss) Marginal costing profit/ (Loss)
Month 1 Month 2 Month 1 Month 2
A 200 4400 (400) 3200
B (400) 4400 200 3200
C 200 3200 (400) 4400
D (400) 3200 200 4400Thank you.
It is not possible to calculate the actual profits, and the question does not ask you to calculate them.
It asks which profits are consistent (or possible).When inventory increases, then absorption gives the higher profit (month 1)
When inventory decreases (month 2) then marginal gives the higher profit.Only one of the four choices are both of these happening.
Example 2
The following data is available on the production and sales for the first three years of a company’s new product.
Year 1 Year 2 Year 3
Production units 5,000 6,000 4,000
Sales units 4,000 6,000 5,000
Variable costs per unit, selling price and total fixed costs per year were constant over the three-year period. The
company is considering the use of either marginal or absorption costing.
Which of the following statements is/are true?
(1) Absorption costing will show a lower profit than marginal costing in Year 1
(2) Marginal costing will show a lower closing inventory valuation than absorption costing in Year 2
(3) Total profit over the three-year period will be the same under both methodsPlease provide the explanation and answer to this.
If you want me to answer then you must ask in the Ask the Tutor Forum. This forum is for students to help each other.
However, do you not have an answer in the same book in which you found the question? (If not then you should be using a different book).
Also, it would seem that you have not watched my free lectures on absorption and marginal costing, because everything is explained in the lectures.
(Our free lectures are a complete course for Paper F2 and cover everything needed to be able to pass the exam well.)
- The topic ‘Absorption Costing & Marginal Costing’ is closed to new replies.