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A company manufactures and sells a single product. For this month the budgeted fixed production overheads are $48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units.
The company currently uses absorption costing.
If the company used marginal costing principles instead of absorption costing for this month, what would be the effect on the budgeted profit?
How do you do this question please?
– I have got that fixed production cost per unit is 48000/12000 = $4.
Thank you
This is exactly the same principle as the previous question you asked.
Given that the produce 12,000 units and only sell 11,720 units, the inventory increases by the difference of 280 units.
Therefore the marginal profit will be lower than the absorption profit by 280 x $4.
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