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A company manufactures and sells a single product. Next year the budgeted total fixed production costs are $480,000, budgeted sales are 24,000 units and budgeted production is 25,000 units. The budgeted profit for next year using absorption costing principles is $57,500
what is the budgeted profit for the next year using marginal costing principles?
Please do not simply set test questions here. You must have an answer in the same book in which you found the question (if not then you should be using a different book).
You should use this forum to ask about whatever it is in the answers that you are not clear about.The absorption rate is 480,000 / 25,000 = $19.20 per unit.
The increase in inventory is 25,000 – 24,000 = 1,000 units.Therefore the marginal and absorption profits will be different by 1,000 x $19.20 = $19,200, and because inventory is increasing, the absorption profit will be higher than the marginal profit.
You should watch my free lectures on this where it is all explained in detail.
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