Page 184 - F2 - MA Integrated Workbook STUDENT 2018-19

Chapter 8

Example 3

A company produced 3,000 units of their only product in the last period. The
unit costs of the product were:

$
Direct material 20

Direct labour 15
Variable production overhead 8

Fixed production overhead 11
–––

Total production cost 54
–––

The sales for the period were 2,500 units.
There were 50 units of opening inventory.

The fixed production overhead incurred in the last period was $30,000
The profit using absorption costing was $54,250 and marginal costing was
$48,750

Reconcile the profits

$
Absorption costing profit 54,250

(Increase)/decrease in inventory × OAR = 500 × 11 –5,500
––––––
Marginal costing profit 48,750

––––––

Closing inventory = 50 + 3,000 – 2,500 = 550

Change in inventory = 50 – 550 = 500 increase

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