Profit difference between Absorption and Marginal costing.

AAdeel11y ago

Hello, I need help in solving the 47th question from MA1 Specimen Exam, in Answers, only right option is available not solution. Question: 25,000 units of a company's single product are produced in a period during which 28,000 units are sold. Opening inventory was 7,000 units. Unit costs of the product are: Direct costs $16.20/uint Fixed production overhead $$7.60/unit Fixed non-production overhead $2.90/unit What is the difference in profit between absorption and marginal costing? A $22,800 B $30,400 C $31,500 D $42,000 Thanks for your time.

JJohn11y ago#1

Difference in inventory: 25000 vs 28000 ie a decrease of 3000 Multiply by fixed production overheads of $7.60 = A $22800 It's important to note that the only difference between absorption and marginal costing profits is the inventory valuation ie the fixed overheads in the inventory.

AAdeel11y ago#2

Thanks for your kind help. I really appreciate it.

Ttariqkath11y ago#3

John can you please show the calculation ?

Kkathy11y ago#4

opening inventory: 7 K production: 25 K sold: (28 K) -------- closing inventory: 4 -------- difference between opening and closing inventory: 3 The question is about the DIFFERENCE. So the key to correctly approaching it is to focus on the difference, I suppose.