Marginal costing

This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.

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July 24, 2021 at 5:06 am #629264
johnbriane
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contribution reported by marginal costing will exceed gross profit reported by absorption costing because of an increase in inventory levels right sir ?
July 24, 2021 at 7:29 am #629279
John Moffat
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No, not right.
The contribution will always be higher than the profit because the profit is the contribution after subtracting the fixed costs.
The profit using marginal costing will be different from the profit using absorption costing due to changes in the level of inventory over the period (whether an increase or a decrease).
July 30, 2021 at 3:32 am #629810
johnbriane
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Sir in the second paragraph you stated that
“The profit using marginal costing will be different from the profit using absorption costing.”
Sir marginal costing profit being different in the sense
Increase or decrease of profits compared to absorption costing?
July 30, 2021 at 10:09 am #629840
John Moffat
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Depending on whether the inventory increases or decreases over the period, the absorption profit will be higher or lower than the marginal profit.
Do see pages 42 and 43 of our lecture notes and the free lectures working through that chapter.
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