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cost and selling price details for a product are as follows
Direct labour :$ 7.50 per unit
Direct material :$ 6.00 per unit
Variable overhead : $2.50 per unit
Fixed overhead absorption rate : $10 per unitSelling price is $30 per unit
company budgeted for 5000 units ,but produced 5800 units ,selling 5200 of them and incurring fixed overhead cost is $23400
what is the marginal costing profit for the month
The answer is $49400 ,
*My query is why didn’t they subtract the closing inventory*
The marginal cost is $16 per unit. Therefore the cost of production is 5,800 x $16 = 92,800. There are 600 units in inventory with a value of 600 x $16 = 9,600.
Therefore the cost of the 5,200 that were sold is 92,800 – 9,600 = 83,200.
So the total contribution is (5,200 x $30) – 83,200 = 72,800.However, much quicker is to say that each unit sold has a marginal cost of $16 (and so the total cost of the 5,200 sold is 5,200 x $16 = 83,200), and that since the selling price is $30 per unit the contribution for each unit sold is 30 – 16 = $14 and so the total contribution is 5,200 x $14 = $72,800.
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