Question

0/1 point (graded) A company manufactures 10,000 units of a product per month. During April 11,000 units were sold and the opening inventory for the month was 3,000 units. The costs per unit of the product are as follows: $ per unit 10.00 Direct costs 4.50 Fixed production overhead Fixed non-production overhead 3.00 By what amount will the profit differ depending on whether marginal or absorption costing is used?

Answer 1

The main different in profit between the two costing methods called Marginal Costing Method or Variable Costing Method and Absorption Cost Method is that the fixed manufacturing overheads in the ending inventory where the Marginal or Variable costing method considers only the units sold but the Absorption costing method will also consider the fixed manufacturing overhead costs stuck in the ending inventory by taking total units available.

Due to this, the profit is deferred between these two costing methods.

Based on the given information, the profit differ is shown below -

Opening inventory in units	3,000
Add: Number of units produced during the month	10,000
Less: Units sold	-11,000
Ending inventory in units (a)	2,000
Fixed production overhead rate (b)	$4.50
Profit differ between Marginal and Absorption Costing Methods	$9,000