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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 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • January 1, 2015 at 3:21 am #221853
    Molly Sum
    Participant
    • Topics: 39
    • Replies: 53
    • ☆☆

    please help to get the answer of profit – marginal costing of 27,000 as per below question.

    Question :
    The following information relates to a manufacturing company for next period:
    Production unit – 14000 & sales 12000 units
    Fixed production costs $63000
    fixed selling costs $12000

    Using absorption costing the profit for the next period has been calculated as $36,000.
    ( please show the calculation of question provided $36000).

    May I know in this question whether need to find out closing inventory ? if yes , please correct me :

    opn + prod.unit – sales
    0+14000 – 12000 = 2000 units

    January 1, 2015 at 6:05 pm #221870
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    Before I answer, I have to ask you two questions 🙂
    Have you watched the free lectures on this? And have you looked at the answer to this question at the back of the Course Notes?

    It is not possible to calculate the $36,000 because there is not enough information – that is why the absorption profit is given in the question.

    Secondly, the only difference ever between marginal and absorption profits is the movement in the inventory (in this case an increase of 2,000 units because the produced more than they sold) multiplied by the fixed production costs per unit (which in this case are 63000/14000 = $4.50).

    January 3, 2015 at 3:32 pm #221923
    Molly Sum
    Participant
    • Topics: 39
    • Replies: 53
    • ☆☆

    I’ve watched the lectures.

    Whether this questions is AC versus mc profits ?
    And difference in profits change in inventory level x overheads absorption rate per unit
    (opn + prod unit – sales = 2000 units x $4.50 = $9,000)

    If inventory level have gone up AC profit will greater than mc profit?
    If less AC profit will less than mc profit?

    Based on the answers provided the following working whether correct to follow ?

    Difference in profit = prod unit (14,000) – sales unit (12,000)
    = 2000 units x $ 4.50 ( 63000/14000)
    = $9000

    Question to asked find MC profit:

    MC profit = AC profit $36,000 – $9000 = $27000

    January 4, 2015 at 9:09 am #221948
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    Yes.

    As I wrote before, the difference is 2,000 x 4.50 = $9,000

    Also, because inventory has increased, absorption gives the higher profit (and therefore marginal gives the lower profit).

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