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Hello,
Please can you help me with this task:
Last month, a manufacturing company’s profit was $2,000, calculated using absorption costing principles. If marginal costing principles had been used, a loss of $3,000 would have occurred.The company’s fixed production cost is $2 per unit. Sales last month were 10,000 units.
Question: What was last month’s production (in units)? I do not know how to calcualte it
Assuming that you have watched my free lectures on this then you will know that the only difference ever between the absorption and marginal profits is the change in inventory multiplied by the fixed production cost per unit.
Therefore in this question the change in inventory over the period must be 5,000/2 =2,500 units.
The change in inventory is always the difference between the units produced and the units sold. You know how many units were sold, so you can calculate the number of units produced.
Assuming that you have watched my free lectures on this then you will know that the only difference ever between the absorption and marginal profits is the change in inventory multiplied by the fixed production cost per unit.
Therefore in this question the change in inventory over the period must be 5,000/2 =2,500 units.
The change in inventory is always the difference between the units produced and the units sold. You know how many units were sold, so you can calculate the number of units produced.
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