Page 194 - F2 - MA Integrated Workbook STUDENT 2018-19
P. 194
Chapter 8
Test your understanding 5
If GHI uses marginal rather than absorption costing, the profit will be $6,000
lower.
Budgeted production = budgeted fixed production overhead / fixed overhead
absorption rate
= $90,000/$1.20 = 75,000 units
Opening inventory = 0 (just finished first year of trading)
Closing inventory = opening inventory + production – sales
= 0 +75,000 – 70,000 = 5,000
Difference between marginal costing and absorption costing =
Change in inventory × fixed overhead absorption rate =
(0 – 5,000) × $1.20 = $6,000
Inventory is increasing therefore marginal profit will be lower.
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