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A company manufactures and sells a single product. For this month the budgeted fixed
production overheads are $48,000, budgeted production is 12,000 units and budgeted sales
are 11,720 units.
The company currently uses absorption costing.
If the company used marginal costing principles instead of absorption costing for this
month, what would be the effect on the budgeted profit?
A $1,120 higher
B $1,120 lower
C $3,920 higher
D $3,920 lowerhi i dont understand why is 1120 lower and not higher because if u subtract sAles units from production units it gives positive answer so the chage in inventory is positive?
The level of inventory certainly does increase over the period. This results in marginal costing giving a lower profit than absorption costing.
I explain this, and the reason for it, with examples in my free lectures on marginal and absorption costing.
The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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