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As you will have seen in the lectures that work through examples 1 and 2, if inventory increases the absorption costing gives the higher profit and if inventory decreased then marginal costing gives the higher profit.
For example 3, if production is more than sales, then inventory increases (so absorption gives the higher profit). If production is less than sales, then inventory decreases (so marginal gives the higher profit.
Only if the inventory does not change (which is when production = sales) will both give the same profit.(I do assume that you are watching the lectures – the lecture notes should not be used on their own because it is in the lectures that we explain and expand on the notes.)
Morning Jhon !
Can you help me this Question that
The prime cost of a product is the sum of the labour and material costs that are identifiable to individual unit of the product .
Answer is True or Fale ?
If False , why ?
cause Prime cost is direct cost
labour & material is direct cost . right ?
Why false
Thanks
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