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Please explain how they arrive at the ans(34,000)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Please explain how they arrive at the ans(34,000)

  • This topic has 1 reply, 2 voices, and was last updated 6 months ago by John Moffat.
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  • December 30, 2021 at 5:54 pm #645091
    JYounis
    • Topics: 6
    • Replies: 1
    • ☆

    Cee Co manufactures 50,000 units during a period but only sells 45,000 units. The company incurred the following costs:

    $ per unit
    Direct costs 12.00
    Fixed production overheads 6.80
    Fixed administration overheads 3.20

    If Cee Co uses marginal costing, what is the difference in profit from using absorption costing?

    December 31, 2021 at 1:21 pm #645119
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49628
    • ☆☆☆☆☆

    If you have watched my free lectures on absorption and marginal costing you will know that the only difference ever between the marginal profit and the absorption profit is the change in inventory multiplied by the fixed production overheads per unit.

    Here the inventory increases by 50,000 – 45,000 units over the period, and the fixed production overheads are $6.80 per unit. Therefore the difference in the profits is 5,000 x $6.80.

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