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Davy Crockett Co makes hats, mainly for fancy dress costumes. The company expected to produce 25,000 hats during the year which would be expected to incur $125,000 in fixed costs. The total cost of each hat is $30 (including fixed costs) and the company can sell them for $40 each. Sales during the year were 15,000 hats from a production volume of 20,000. Actual fixed costs were $80,000 and there was no opening inventory.
What is the marginal costing net profit for the year?
Once I got the Contribution Amount which was $225,000 I thought the amount of Fixed Overheads I was meant to deduct was the Budgeted Fixed Costs of $125,000 not the Actual Fixed Costs of $80,000. Is there a reason why this is?
To calculate the actual profit, we subtract the actual fixed costs.