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A company produces and sells a single product whose variable cost is $6 per unit.
Fixed costs have been absorbed over the normal level of activity of 200,000 units and have been
calculated as $2 per unit.
The current selling price is $10 per unit.
How much profit is made under marginal costing if the company sells 250,000 units?
A $500,000
B $600,000
C $900,000
D $1,000,000Answer in revision kit is B (total fixed costs is calculated on normal level of activity 200,000).
But in my opinion, I think A is the correct answer (total fixed costs is calculated on sale amount 250,000).
So which answer is correct? Thanks in advance.
The answer in the Revision Kit is correct.
Total fixed costs do not change with the level of production, by definition.
I do suggest that you watch my free lectures on marginal costing.
(Our lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.)
I do not understand how was the computation ? is the true answer B
Contrubution per unit $10-$6=$4
then profit under marginal costing should be 250,000*4=$1000,000
am i wrong tutor?Of course the answer is B !
The total contribution will be 1,000,000, but to get the profit you then subtract the fixed overheads of 400,000.
Have you watched my free lectures on marginal costing?
You click on ACCA on the top red bar on this page. Then you click on MA from the new bar that will appear.
Then you will be on a page listing all of our free resources for MA, including the free lectures and the free lecture notes that you need when watching the lectures.
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