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Sir,
1) can you give an example of increase in inventory for marginal and absorption costing i cant figure them out in the questions at times. and also how do you calculate fixed o/h absorption rate please. thank you
2) when a company had an op. inv. of 16500 u and closing inv. of 18000 units the profit under absorption costing was 40,000 . the fixed production o/h rate was 10 p.u.
what would the profit for last month have been under marginal costing ?
Mij
For (1) you are going to have to watch the free lectures on marginal and absorption costing – I cannot type them all out here, and they do include examples. For calculating the absorption rate, again there are lectures on overhead allocation, apportionment, and absorption.
For (2), the inventory has increased by 1,500 units. The overheads absorption rate is $10 per unit, therefore the profits will differ by 1,500 x $10 = $15,000.
Since inventories have increased, absorption profit will be higher than the marginal profit.
Therefore the marginal profit will be 40,000 – 15,000 = $25,000.
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