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Absorption costing profit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Absorption costing profit

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • June 18, 2021 at 3:30 pm #625713
    tomasm
    Member
    • Topics: 7
    • Replies: 2
    • ☆

    Cost and selling prices for a product is given below :

    Direct materials : $6/unit
    Direct Labour : $7.50.unit
    VOH : $2.50/unit
    Fixed OH absorption rate : $5

    Profit = 9

    SP = $30/ unit

    Budgeted production for month was 5000 units and the company produced 5800 units and sold 5200 units incurred FOH costs of $27400.

    The question is to find marginal and absorption costing profit

    Now I found the marginal profit to be $45400

    Absorption costing profit is $48400

    My question is when I do the reconciliation method of profit assuming I had marginal profit 45400

    45400 – absorption profit = 600 units * $5
    45400 – 3000 = Absorption profit which is 42400
    I dont understand why I dont get the same answer with the reconciliation method

    Please help 🙂

    June 19, 2021 at 7:18 am #625744
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51576
    • ☆☆☆☆☆

    The inventory is increasing by 600 units and therefore the absorption profit will be higher than the marginal profit.

    45,400 + 3,000 = 48,400.

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