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I’ve being been stuck in Step 4 of the example on page 191 ( BPP F2 interactive text)
Could you explain why there is under-production (40,000 units).
Actual production = 280,000 units
Budgeted production = 320,000 unitsbut I read the previous chapter it said ” Over absorption means that the overheads charged to the cost of sales are greater then the overheads actually incurred.” So I think it is over production instead. And COGS should deduct $50,000 which production cost absorbed.
I do not have the BPP Interactive Text (although it seems you may be using an old copy because it is no longer called F2 – it is called MA. Be aware that the syllabus now includes some statistics.)
However the is under production because they have produced less than they budgeted on producing and therefore the overheads charged will be less that the overheads actually incurred.
Have you watched my free lectures on marginal and absorption costing? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
a company has established a MC profit of 72300 . opning inventory was 300 and closing inventory is 750units. fix production overhead rate $5/unit what was the profit under absorption costing ? $74550 solution : marginal profit $ 72300 less:fixed cost in opening inventory ( 300*$5) ( 1500) add:fix cost in closing invntory ( 750*$5) 3750 absorption costing profit is 74550 now my question is why is he deducting opening inventory and adding closing inventory
last month a company’s profit was $2000 ,using absorption costing . if marginal costing has been used , loss of $3000 would have occurred . fixed production cost is $2/unit .sales last month were 10000 units .what was last month’s production ? no.of units change in inventory = $5000/$2= 2500+10000 sales=12500 ans…………my question is why there is 5000? 3000 is loss and 2000 is profit why he added up..
I explain this in my free lectures on marginal and absorption costing.
The only reason ever for the difference is the change in inventory multiplied by the fixed production cost per unit.
For your first question, the inventory increased by 450 units and therefore the absorption profit is higher than the marginal profit by 450 x $5 = $2,250.
For your second question, 3,000 is 5,000 more than minus 2,000.
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