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A company, which manufactures and sells a single product, has the following sales and production data for a period:
Production 2,200 units
Sales 2,000 unitsContribution per unit is $5.
Fixed overheads per unit are $10.What is the value of the absorption and marginal costing profits for the business?
Absorption costing profit:
$10,000
$11,200
$11,500
$12,000Marginal costing profit
$10,000
$11,200
$11,500
$12,000Answer is Absorption costing 12000 and Marginal costing 10000.
How would it show profit in marginal is contribution is less than fixed overhead?I have changed a bit like answers were given in tabular form and we were asked to tick. I wrote that table in bullets.
But if 2000 units are sold, the contribution is 2000 x 5 = 10,000. To get profit, fixed costs have to be deducted, I assume amounting to 2200 x 10 = 22,000 (though fixed costs should be absorbed on budgeted output, not actual output). That suggests a loss of 12,000.
I don’t really understand.
Right sir. May be it is problem with answer. Can you please suggest me the correct answer?
I thinkmthe MC result is a loss of 12,000 and the TAC result is a loss of 10,000 because there are 200 items in closing stock each having 10 of fixed overhead = 2000 overhead carried forward in inventory under TAC. In MC all overheads are written off in the period.
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