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Chapter 1
Reconciling profits
5.1 Moving from one system to another
The difference in profits is caused by the fixed overheads contained in inventory:
$
Absorption costing profit X
(Increase)/decrease in inventory × fixed overheads per unit (X)/X
–––
Marginal costing profit X
–––
As inventory… Which profit is higher?
Increases Absorption costing
Decrease Marginal costing
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