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Hello
I could not understand the question 1 Test Note, unfortunately the answer didn’t help me either.
Could you please help?“A and C satisfy Month 1, C and D satisfy month 2. Therefore C satisfied both”.
Could yo you please explain it?
Thanks
Gabbi
You will know from the lecture that if production is greater than sales (and therefore inventory increases) that absorption costing gives the higher profit.
And also that if production is less than sales (and therefore inventory decreases) then marginal costing gives the higher profit.In month 1, production is more than sales, so absorption gives the higher profit.
In month 2, production is less that sales, and so marginal gives the higher profit.The only one of the 4 choices where the above is the case is C.
(The question does not ask you to calculate the profits – that is impossible because there is not enough information. It asks which of them is consistent with the data.)
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