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Chapter 8

Why is this so? If we consider the production fixed costs....

Absorption costing:

 The opening inventory has been charged with $550 of fixed production costs
(50 × $11 = $550).

 The fixed production costs absorbed are $33,000 (3,000 units × $11 = $33,000).

 $6,050 of this has then been deducted from cost of sales as part of the closing
inventory value (550 × $11 = $6,050).

 There is an over absorption adjustment of $3,000, reducing the production fixed
costs in the statement further

 Therefore only $24,500 of fixed costs has been charged in this period’s
statement

Marginal costing:

 The statement of profit or loss is charged with the full $30,000 of fixed
production costs as none is included in the cost of sales.

 $5,500 more fixed costs has been charged under marginal costing reducing the
profit by $5,500

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