A manufacturer produces a single product and prepares internal reports under both Marginal (variable) costing method and Full (absorption) costing method.
Data for the month :
• Selling price: £40 per unit
• Variable production cost: £22 per unit
• Budgeted fixed production overhead: £90,000 per month
• Normal activity level used to set the OAR: 10,000 units per month
• Actual fixed production overhead incurred: £90,000
• Fixed non-production costs: £30,000 per month
Operational data: Production 11,000 units; Sales 10,000 units; No opening inventory.
Which pair of monthly profits is correct?

Question

A manufacturer produces a single product and prepares internal reports under both Marginal (variable) costing method and Full (absorption) costing method. 
 Data for the month : 
 • Selling price: £40 per unit 
 • Variable production cost: £22 per unit 
 • Budgeted fixed production overhead: £90,000 per month 
 • Normal activity level used to set the OAR: 10,000 units per month 
 • Actual fixed production overhead incurred: £90,000  
 • Fixed non-production costs: £30,000 per month 
 Operational data: Production 11,000 units; Sales 10,000 units; No opening inventory. 
 Which pair of monthly profits is correct?

Accepted Answer

Full (absorption) costing profit £69,000; Marginal (variable) costing profit £60,000

Answer

Full (absorption) costing profit £60,000; Marginal (variable) costing profit £60,000

Answer

Full (absorption) costing profit £60,000; Marginal (variable) costing profit £69,000

Answer

Full (absorption) costing profit £51,000; Marginal (variable) costing profit £60,000

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