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Marginal Costing

Forums › FIA Forums › MA2 Managing Costs and Finance Forums › Marginal Costing

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Ken Garrett.
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  • July 19, 2021 at 8:25 am #628597
    maximus07
    Participant
    • Topics: 407
    • Replies: 398
    • ☆☆☆☆

    A company has put together a standard cost card for its single product as shown below. Budgeted monthly production is 2,500 units.

    Selling price= 150
    Direct labour (5 hours @ $10/hour)=50
    Direct materials (6 litres @ $5/litre)=30
    Variable overhead (5 hours @ $6 hour)=30
    Fixed overhead= 15
    Profit=25

    The activity level in December was not the same as budgeted and the data from the cost card was used to recalculate the budgeted profit for the actual activity level using a marginal costing system. The flexed budget showed a profit of $54,500.

    Actual costs in December were as budgeted except for materials which were 20% more expensive and variable overheads which were 30% cheaper.

    Using a marginal costing system the actual profit for December would be $_____

    Sir, in this question we have actual fixed cost same as budget so we can use formula
    Flex budget profit = (actual units x budgeted contribution per unit) – Budgeted fixed costs.
    But if actual fixed cost were different from budgeted so what we have to do?

    July 19, 2021 at 11:17 am #628687
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10197
    • ☆☆☆☆☆

    In marginal costing, for actual profit first calculate actual contribution as:

    Sales revenue less variable costs.

    Then convert actual contribution to actual profit as:

    Actual profit = actual contribution less actual fixed costs.

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