# Practice Assessment 1 Task 1.3

BDavi95
Registered Posts:

**3**
Can anyone please help?

BDavi95
Registered Posts: **3**

Can anyone please help?

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## Answers

61Norvydas Valavicius.

3461Absorption Costing - All costs are absorbed - inclusive of Fixed Costs

Marginal Costing - Fixed costs are accounted separetely

I'll give you an example for O. Inventory;

Opening Inventory for Absorption Costing;

3,000 units - Now we need to find out how much Fixed Costs + Other variable costs are per unit (we already know Direct Materials + Direct Labour) we simply take £230,000 and divide by number of units made (production units). We do exactly the same with fixed costs.

Our total Variable Costs are; £15.00 + £10.00 + £23.00 + £45.00 = £93.00 p/u

Opening inventory is 3,000 x £93.00 = £279,000

Please bare in mind that when you working out production costs for Month 3 the variable other overheads increased from £230,000 to £250,000 so cost per unit will actually be £95.00 for Month 3.

Closing inventory @ month 3 will be £190,000 (£95.00 x 2,000 units).

I believe you know how to work our cost of sales now, fixed costs will be 0.

Opening Inventory for Marginal Costing;

You do everything exactly the same however you do not include fixed costs in your per unit calculation - as fixed costs are apportioned separately.

So Opening Inventory for Month 3 would be; £144,000 ( £15.00 + £10.00 + £23.00 = £48.00 x 3,000).

The only difference in this is that Fixed costs are included in absorption calculation - as all costs are absorbed to find out cost per unit.

Norvydas Valavicius.