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Hi.
I am Augustine Farmer and I would like to know how beginning inventory is valued and or treated under absorption and marginal costing to derive at cost of goods sold. For example if the current production cost for 1,000 were $5,000, sales were 1,200 units @ $10.00 and beginning inventory were given in units of 500, how would the 500 units be valued under both form of costing methods to derive at the cost of goods sold ? Thanks.
Under absorption costing, inventory is valued at the full production cost per unit, including fixed production overheads. With marginal costing it is valued at the full variable (i.e. marginal) production cost, ignoring fixed overheads.
All of this is explained, with examples, in my free lectures. The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
So does that mean beginning inventory per unit would be valued at $5.00 since the current production cost per unit is $5.00?
If there is no other information given in the question then the answer is yes. However almost certainly there would be more information given in the question.
Also, your original question asked how they would be valued under both absorption and marginal costing – I answered you, but again there would need to be more information given to be able to know what the fixed overheads per unit were.
Again, you must watch the free lectures – they go through all of this in detail. If you are not watching the lectures for any reason then you must buy a Study Text from one of the ACCA approved publishers.
(I answered your original question yesterday and yet today you posted exactly the same question again in the other forum. Please do not do this – it is wasting everybody’s time!!)
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