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Hi,
I feel I have a good grip on understanding marginal and absorption costing however there is just one type of question I am struggling with. I would be very grateful if you could provide the answer and the logic behind it, please.Last month opening inventory was 2000 units and closing inventory was 4500 units. Under absorption costing closing inventory is valued at £29,250. Marginal costing profit is £25,000 and absorption costing profit is £34,000. Whats the variable production cost per unit?
Im very grateful for your help in advance.
Thank-youKedesh..
hi, kedeshw
the inventory increased by 2500 units so the difference in profit is 9000, the fixed overhead is 3.60 i hope you know the calculation. After that we are given absorption costing closing inventory is 29250 so the full cost per unit is 6.50 ( 29250 ÷ 4500) now subtract 6.50 with 3.60 to get variable cost per unit =2.90 answer
i hope you understand if not please commentAshutosh707: Please do not answer questions in this forum because it is the Ask the Tutor Forum and you are not the tutor. (But please do help people in the other Paper MA forum 🙂 )
Kedeshw: What Ashutosh707 has written is correct. The only reason ever for the difference between marginal and absorption profits is the change in inventory multiplied by the fixed production cost per unit. The rest is hopefully clear from what Ashutoshj770 has written.
Hi Ashutosh7,
Thank you so much for your response. Perfectly understood and explained. I really do appreciate it.
Have a lovely weekend.
Kindest Regards.
Hi Mr Moffat,
Thank you for your input as well. Really appreciate your comments. Im all good now for absorption and marginal costing thanks to you. Cannot thank you enough.
I hope you have a lovely weekend.
Kindest Regard
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