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Example 3 – Required
Compared profit under marginal & absorption costing of the following situation.
a. Production > sales – my answer is absorption > marginal
b. Production < sales - my answer is absorption < marginal
c. production = sales – my answer is absoprtion < marginal
Is my answer is correct? If wrong please explain the reason. Thanks.c. production = sales
Answer is: absorption costing profit = marginal costing profitReported profit figures using marginal costing or absorption costing will differ if there is any change in the level of inventories in the period.
In case (c), production = sales, which means, no change in inventory level. Thus, profits reported under both the costing systems will be the same.
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