Exercise+marginal+and+absorption

> £ > Materials 10 Labour 15 Fixed overheads 8 > 33 Variable selling costs 7 40 Selling price 50 Profit 10 > Last year 4,000 units were produced, of which 3,750 were sold. Actual fixed overheads were £28,000. There was no opening stock. > Calculate the profits under marginal costing and absorption costing, and reconcile them. > > Marginal cost 􏰀 £25, absorption cost 􏰀 £33
 * 1) 1.8 A company’s cost card is shown below.
 * 1) 1.8 Remember to value stocks correctly: include the fixed overheads only in absorption costing.
 * 1) 1.8 Remember to value stocks correctly: include the fixed overheads only in absorption costing.

Sales COS Materials Labour FO Closing stock FO

Over absorption Selling costs Profit Reconciliation Profit per AC Less: FO in closing stock (£8 􏰃 250 units) Profit per MC  Unit MC AC  £££££ 50 187,500 187,500 10 15 0/8 25/33  40,000 60,000 –  100,000 (6,250)   7 (26,250) (26,250) 39,500 41,500 http://v5.books.elsevier.com/bookscat/samples/9780750686693/9780750686693.pdf

Absorption: 4000*$8= 32000

Absorption=32000-28000=$40000. Under production