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Dear Sir,
I am unable to understand this question so may you explain me how to solve it:
using the information below for questions 1 and 2
Costing and selling price details for the product M are as follows:
$ per unit
Direct material 4.20
Direct labour 3.00
Variable overheads 1.00
Fixed overheads 2.80
——
11.00
Profit 4.00
——-
Selling price 15.00Budgeted production for the month are 10000 units
Actual production for the month are 12000 units
Actual sales for the month are 11200 units
Actual fixed overhead cost incurred during month are $310001) What is the variable costing profit for the month:
(A) $44800
(B) $45160
(C) $50600
(D) $761602) What is the absorption costing profit for the month:
(A) $42200
(B) $44800
(C) $45160
(D) $47400
DeepSurely you have answers in the same book in which you found the questions? 🙂
To get the variable costing profit, you multiply the number of units sold by the standard contribution per unit, and then subtract the actual fixed overheads.
To get the absorption costing profit, the most efficient way is to calculate it from the marginal costing profit. The difference between the marginal and absorption profits is the change in inventory over the period (800 units) multiplied by the fixed overhead absorption rate ($2.80). Since the inventory is increasing, the absorption profit will be higher than the marginal profit.
All of this is covered in our free lectures on absorption and marginal costing.
(Our free lectures are a complete course for Paper F2 and cover everything needed to be able to pass the exam well)
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