FTC Units 8/9 Chap 9 Act 2  Help!
mikshake
Registered Posts: 70 Regular contributor ⭐
Hi,
I'm a bit stuck on one of the questions (and I've been looking at it far too long now to make any sense of it lol).
I'm asked why two profits based on selling the same amounts are different and this is because one uses absorption costing and the other variable costing. I then have to do a working to show this, the answer coming out as the difference between the two profits  most of which I understand. Part confuses me however:
£153000 (total fixed costs included in product cost) x 1200 (?) / 10000 (production ?) = £18360 (diff in profits)
I think the 10000 is the actual production volume (the actual units being sold were 8800), but am unsure were the 1200 comes from and why I am multiplying the total fixed costs included in product cost figure.)
It's probably fairly obvious and I've just been looking at this question for far too long, but can anyone help? (Hope I've given enough info on the question)
Thanks!
mikshake~
I'm a bit stuck on one of the questions (and I've been looking at it far too long now to make any sense of it lol).
I'm asked why two profits based on selling the same amounts are different and this is because one uses absorption costing and the other variable costing. I then have to do a working to show this, the answer coming out as the difference between the two profits  most of which I understand. Part confuses me however:
£153000 (total fixed costs included in product cost) x 1200 (?) / 10000 (production ?) = £18360 (diff in profits)
I think the 10000 is the actual production volume (the actual units being sold were 8800), but am unsure were the 1200 comes from and why I am multiplying the total fixed costs included in product cost figure.)
It's probably fairly obvious and I've just been looking at this question for far too long, but can anyone help? (Hope I've given enough info on the question)
Thanks!
mikshake~
0
Comments

hi
If the production volume is 10000 and actual sales 8800, the 1200 is closing stock of units (100008800). This figure is then used to calculate the amount of fixed overheads absorbed into the closing stock on the absorption costing statement in the way you have described, giving you the difference in profit of £18360. The inclusion of overheads into the stock figure in absorption costing creates the difference between the absorption profit and the result of a marginal costing statement.
Hope that helps!
Adam0 
Thanks  that makes sense now!
Perhaps studying on the weekend is not a good idea, lol!
mikshake~0
Categories
 All Categories
 1.2K Books to buy and sell
 2.3K General discussion
 18.9K For AAT students
 266 NEW! Qualifications 2022
 147 General Qualifications 2022 discussion
 9 AAT Level 2 Certificate in Accounting
 42 AAT Level 3 Diploma in Accounting
 65 AAT Level 4 Diploma in Professional Accounting
 8.9K For accounting professionals
 23 coronavirus (Covid19)
 274 VAT
 92 Software
 274 Tax
 138 Bookkeeping
 7.3K General accounting discussion
 194 AAT member discussion
 3.8K For everyone
 38 AAT news and announcements
 352 Feedback for AAT
 2.8K Chat and offtopic discussion
 590 Job postings
 17 Who can benefit from AAT?
 36 Where can AAT take me?
 44 Getting started with AAT
 26 Finding an AAT training provider
 48 Distance learning and other ways to study AAT
 25 Apprenticeships
 65 AAT membership