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Marginal costing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Marginal costing

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
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  • July 24, 2021 at 5:06 am #629264
    johnbriane
    Member
    • Topics: 170
    • Replies: 160
    • ☆☆☆

    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
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    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
    Member
    • Topics: 170
    • Replies: 160
    • ☆☆☆

    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
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    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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