Marginal costing values inventory at variable cost only treating fixed costs as

Marginal costing values inventory at variable cost

This preview shows page 6 out of 6 pages.

Marginal costing values inventory at variable cost only, treating fixed costs as period costs. (1) When closing inventory is higher than opening inventory, absorption costing will produce the higher profit. (1) When closing inventory is lower than opening inventory, marginal costing will produce the higher profit. (1) (Max 4) [4] (f) Working: Fixed cost = ($324 000 + $60 000) / 12 = $32 000 pm / 11 000 units = $2.91 (1OF) Total unit cost = $2.91 + $13.00 (1) = $15.91 (1OF) Sales ($17 × 7 700) 130 900 (1) Cost of sales ($15.91 (3) × 7 700) 122 507 Profit 8 393 (1OF) [5] (g) Situations where marginal costing is useful: 1 Make or buy decisions. (1) 2 Product mix in limiting factor decisions. (1) 3 Whether to discontinue a product. (1) 4 Acceptance of special orders. (1) Max 3 marks [3] (h) Marginal costing should only be used for short term decision making (1) However, it is necessary to split all costs into fixed and variable (1) which may be difficult (1) Difficult to use if more than one product is sold (1) as it is difficult to split fixed overheads over several products (1) Max 4 marks [4] [Total: 30]
Image of page 6

You've reached the end of your free preview.

Want to read all 6 pages?

  • Fall '16
  • Generally Accepted Accounting Principles, MARK SCHEME, cambridge international examinations, Cambridge International, International AS/A Level

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture