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A business has just completed its first year of trading. The following information has been from the accounting records:
Variable cost per unit $
Manufacturing 5.00
Selling and admin. 1.20Fixed costs
Manufac. 72.000
Selling and adm. 15.500
Production was 60.000 units and sales were 56.000 units. The selling price was $9 per unit throughout the yearwhat is the difference in profit using marginal costing for inventory valuation, rather than absorption costing?
a.$3600
b.$4800
c.$5000
d. $5400Please do not simply set test questions for me to answer.
You must have an answer in the same book in which you found the question, so in future please say what problem you have with the answer and I will try and help.The fixed production cost is 72,000/60,000 = $1.20 per unit.
The inventory has increased by 60,000 – 56,000 = 4,000 units.
Therefore the profits will be different by 4,000 x $1.20 = $4,800
I do suggest that you watch our free lectures on marginal and absorption costing. Our lectures are a complete course for Paper F2 and cover everything you need to be able to pass the exam well.
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