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Hi My Dear tutor, I have another question.
June 2012 exam paper.A company uses standard absorption costing to value inventory.Its fixed overhead absorption rate is $12 per labor hour and each unit of production should take four hours.in a recent period where was no opening inventory of finished goods, 20000 units were produced using 100,000 labor hours 18000 units were sold.the actual profit was $464000
What profit would have been earned under a standard marginal costing system.
overhead(2000*4hours *12=96000
why 96000 sould be added over actual profit of 464000?
confused this part(((need explanation
thanks in advance
You have obviously not watched the free lectures, because I explain this in my lectures on marginal and absorption costing (and you cannot expect me to type out my lectures here
🙂 )The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
(If you read the answer to this question properly, you will see that 96,000 is subtracted – not added!)
the answer here is difference in profit =change in inventory *fixed overhead absorption rate per unit.
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