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Budgeted net profit using absorption costing would be $6,700 for a period with each unit of inventory valued at
$10. Net profit using marginal costing for the same period would be $5,500 with inventory valued at $6 per unit
What would be the change in the level of inventory during the period?
300 units
120 units
120 units
300 units
I calculated as 6700= 5500 +(change in inventory x 6) so answer is 120 units positive, but the given answer is 300. Which one is correct?
The difference in the profits is $1,200.
As I explain in my free lectures, the only reason ever for the difference in the profits is the change in the inventory multiplied by the fixed production overheads per unit.
Given that the fixed overheads per unit are $4 per unit, the inventory must have changed by $1,200/$4 = 300 units.
Have you watched my free lectures on this?
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