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The following budgeted information relates to a manufacturing company for next period:
Production: 14,000 Units
Sales: 12,000 Units
Fixed production costs: $63,000
Fixed selling costs: $12,000The normal level of activity is 14,000 units per period. Using absorption costing the profit for next period has been calculated as $36,000.
What would be the profit for next period using marginal costing?Please don’t simply set test questions and expect an answer. You must have an answer in the same book in which you found the question, and so you should ask about whatever it is in the answer that you are not clear about.
If you have been watching my free lectures you will know that the difference between the profit using marginal costing and the profit using absorption costing is always the change in inventory multiplied by the fixed production overheads per unit.
The standard fixed production overheads per unit are 63,000/14,000 = 4.50
The inventory increases by 14,000 – 12,000 = 2,000.
So the profits will be different by 2,000 x 4.50.My lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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