In a period a company had opening inventory of 31000 units of Product G and closing inventory of 34000 units Profits on marginal costing were 850000 and profits based on Absorption costing were 955500 if the budgeted fixed cost for the period were 1837500 what was the budgeted level of activity.
the book calculation was.
increase in inventory of 34000 less 31000 equals 3000 difference in profits of 955500-850500 equals 105000 OAR 105000/3000 equals 35 level of activity equals 1837500/35 equals 52500.
I have done my arithmatic this way.
change in inventory is 3000 change in profits 105000 OAR 1837500/105000 equals 17.50 OAR * Change in inventory equals 17.50*3000 equals 52500. will my method will do in the Exam as well. Many thanks I appreciate for your help.