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Change in inventory

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Change in inventory

  • This topic has 1 reply, 2 voices, and was last updated 3 months ago by John Moffat.
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  • Author
    Posts
  • April 21, 2022 at 11:07 am #654191
    zaramujeeb
    • Topics: 15
    • Replies: 2
    • ☆

    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?

    April 21, 2022 at 4:51 pm #654225
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49921
    • ☆☆☆☆☆

    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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