a company with a single product sells more units than it manufactured in a period .
which of the following correctly describes the use of marginal costing in comparison with absorption costing in the above situation ?
1.both profit and inventory value will be higher
2.bothe profit and inventory value will be lower
3.profit wil be higher and inventory value will be lower
4.profit will be lower and inventory value will be higher
Sir whats the correct answer with the reason pls .
my next doubt is that when using absorption costing wether we will include or exclude the value of closing inventory ? other than fixed cost difference any other difference is there between absorption costing and marginal costing ?
Thank you sir !!!
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mixed bank question on absorption costing
11y ago#1Have you watched the free lectures on absorption and marginal costing? (because all your questions are answered there).
The only difference between absorption and marginal costing profits is due to the valuation of inventory - absorption includes fixed overheads in the inventory value, marginal costing does not.
So, using marginal costing gives a lower value for inventory than using absorption costing.
Since they are selling more than they produce, the inventory is falling. Therefore marginal costing will give the higher profit.
sir, i studied absorption and marginal costing only from opentution lectures !!! :) . when i started doing mixed bank i got some doubts .
thank you sir i got the answer .
sir one doubt that they are saying the sold more than they produced that means they made use of the opening inventory ryt ?? am i correct sir ?? so here op inventory is greater than closing inventorry so marginal costing gives higher profit than absorption costing . my method of thinking is correct sir ??
THANK YOU !!!
11y ago#3Your thinking is correct :-)
:)
11y ago#5:-)
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