MDCL HELP - Absorption/Marginal costing

Can any one help me with this question please


  • AC88AC88 AAT Student Posts: 6
    edited April 21

    Hopefully just doing the opening inventory for month 2 will help then can figure out the rest for yourself, calculate the cost p/unit first so using month 1s' figures:

    Absorption Costing
    1. 15+10+(230,000/10,000)+(450,000/10,000) = 93 cost per unit

    Secondly find out how many units are left at end of month and convert that to money value:

    2. (10,000-8,000) x 93 = 186,000 closing balance

    Marginal Costing
    1. 15+10+(230,000/10,000) = 48 cost per unit (Note how the fixed costs are ignored as marginal costing does not carry the fixed costs forward into the next period, instead they are posted into the period they are incurred)

    Then exactly the same as before

    2. (10,000-8,000) x 48 = 96,000

    Note that in absorption costing the fixed overheads are absorbed into the unit (shown in above calculation) so the fixed overheads line in the question will be 0 in month 2 and 3. In marginal costing it assumes the fixed overheads relate to the period so the fixed overheads line will show 450,000 in both month 2 and month 3.

    When coming to studying this it is best to focus on how the fixed costs behave as it is the only difference between the two costing systems.

    Does this make sense?
  • GeorgiaHGeorgiaH AAT Student Posts: 16
    Oh great thanks very much. Makes much more sense
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