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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 $12000Using 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 unitsBefore 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).
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)
= $9000Question to asked find MC profit:
MC profit = AC profit $36,000 – $9000 = $27000
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