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25,000 units of a company’s single product were manufactured in a period during which 21,000 urats were sold. Land costs of the product were
Direct costs
$16.20
Fixed production overheads
$760
Fixed non-production overheads
$2.90
What is the difference between the absorption costing profit and the marginal costing profit for the period?
I am really surprised that the book in which you found this question did not also supply an answer and explanation !!
However, as I explain in my free lectures on this, the only difference ever between the marginal and absorption profits is the change in inventory multiplied by the fixed production overheads per unit.
Here, the change in inventory is 25,000 – 21,000 = 4,000 units, and the fixed production overhead per unit is $760 (although I wonder if you have mistyped and that it should be $7.60).
Do watch my lectures on this. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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