Home For AAT student members AQ 2016 Professional Diploma in Accounting Management Accounting: Budgeting

Marginal Vs Absorption

If someone could help me work out the answer to this question, that would be great.

Calculate the inventory valuation per unit using both marginal and absorption costing.

Direct Material £10 per unit
Direct Labour £7 per unit
Variable Overhead £3 per unit

Budgeted Production 4,000 units
Budgeted Fixed Production Overhead £40,000
Budgeted Non-production Overhead £60,000

Actual Production 4500 units
Actual Fixed Production Overhead £50,000
Actual Non-production Overhead £55,000


  • crispycrispy Trusted Regular SouthamptonRegistered Posts: 456

    To help you reach the answer:

    - The difference between marginal and absorption costing lies the treatment on fixed production overheads
    - Marginal costing includes only variable costs / Absoption costing will include production overheads

    To calculate:
    - Calculate marginal cost per unit (variable cost per unit)
    - Calculate Overhead Absorption Rate from the budgeted figures
    - Use this figure to calulate Absorption Cost per unit

    In the above you may find there has been an over/ under absorption of overheads ?

    Have a go and see how it goes :)
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