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What are the Industrial and Commercial sectors in which a business organisation operates?
Business A might be in the car industry.
Business B might be a bank – commercial but not industrial
Business C might be run a chain of hotels (commercial)
Business D might manufacture clothing (industrial)
Reconciliation of absorption and marginal costing profits.
How can one identify increase or decrease in inventory levels especially when one or more periods are involved.
Absorption and Marginal Costing
If one if given
Variable production cost
Total production cost
Total variable cost
Total cost1. Which should be used to value sales in both methods
2. Which should be used to value inventory in both methods
Number of units sold = opening inventory units + units made – closing units made.
Use algebra to find whatever number is missing.
Inventory values should take into account only production costs. So:
For MC, inventory will be values at variable production cost. Cost of sales will be at variable production costs plus any variable cost incurred in selling eg packaging or distribution.
For TAC, inventory should be at total production cost. To get to profit, all remaining costs will have to be deducted.
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