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if we have fixed production cost of $105,000 and a profit of $210,000 under absorption costing with opening inventory of 30,000 units and sale of 35,000 units, what will be the profit under marginal costing? Will it be higher then absorption costing i-e $22,7500 or 192,500?? Please answer
The answer depends on how many units they are producing. If they produce more than 35,000 then the inventory will increase over the period and absorption costing will give a higher profit. If they produce less than 35,000 then the inventory will fall over the period and so marginal costing will give a higher profit.
This is all explained in my free lectures on absorption and marginal costing. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well 🙂
Thank you so much for your response, much appreciated, I will go through your lectures and notes:)
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