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Hey,
I had a question on an exam which kind of confused me.
the question was:
A firm had profit of $50,000 under marginal costing when inventory increased from 1000 unit at the start of the period to 1400 units at the end. under absorption costing the fixed production OAR is $12 per unit.
what would the profit be for the period under absorption costing?if you could help me on this question I would be very thankful.
Thank,
Shreeya ParmarThe only difference ever between the marginal and absorption profits is the change in inventory multiplied by the fixed production overhead per unit.
Here the inventory has increased by 400 units and therefore the profits will be different by 400 x $12 = $4,800.
The inventory has increased and therefore the absorption profit will be higher than the marginal profit by this amount.
I do explain this in my free lectures 🙂
The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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