CIMA C1 Unit 3B 2012 Marginal
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Transcript of CIMA C1 Unit 3B 2012 Marginal
CIMA C1Fundamentals Of Management AccountingOverheads, Absorption & Marginal Costing
Marginal Costing What is Marginal Costing? This takes place where Overhead Costs are
written off in full to the period in which they occur.
Production Overheads under this method are NOT added to Prime Cost as is the case with Absorption Costing
Direct Materials Direct Labour Variable Costs Direct Expenses = Prime Cost Production Overheads - Fixed Costs via OAR
= Total Production (Absorbed Cost) Non-production Overheads = Total Cost
Absorption Costing template
Direct Materials Direct Labour Variable Costs Direct Expenses = Prime Cost Production Overheads – Fixed Costs Non-production Overheads - Fixed Costs = Total Cost
Marginal Costing template
Sales Less Production Costs = Gross Profit Gross Profit Less Expenses (Non-Production) = Net Profit
Absorption Costing template
Sales Less Variable Costs (Prime) = Contribution Contribution Less Fixed Costs: Fixed Production Costs Fixed Non-Production Costs = Net Profit
Marginal Costing template
Write down the data I have, we can practice Marginal AND Absorption Costing techniques:
Sales Price: £20 Direct Materials £6 Direct Labour £3 Variable overheads £4 All above are PER UNIT Fixed Overheads £20,000 Budgeted each
month: Budgeted Production 20,000 units
Marginal Costing Example
Actual Production & sales was 20,000 Units in a particular month:
Calculate:1. Contribution per Unit2. Total Contribution for the month3. Total Profit for the Month – ALL using
MARGINAL COSTING4. Profit for the month using Absorption
Costing
Marginal Costing Example
In the exercise, the Profit achieved were the same under Marginal & Absorption methods
Why? Because SALES = PRODUCTION, both
volumes are 20,000 Units IF Sales & Production quantities differ, the
profits WILL DIFFER!. Accountants expect this & need to reconcile
the difference.
Marginal Costing Example
The reconciliation can be made simpler by working to a method:
Note: This is an exam favourite topic Learn the next slide well: We can then tackle a second question:
Marginal Costing
If Op Stock > Close Stock
If Op Stock = Close Stock
If Op Stock < Close Stock
Absorption & Marginal Costing:
MC Profit > AC Profit
MC Profit = AC Profit
MC Profit < AC Profit
These are KEY Rules: remember them –
Re-work Exercise 2 Make the following adjustment: Actual Production = 6,000 Units Actual Sales = 4,800 units Reconcile the difference in profits:
Exercise 3
Sales Price £10 Direct Materials £3 Direct Labour £2 Variable overheads £1 Fixed Overheads £10,000 per month Budgeted Production 5000 units per month Actual Production & Sales = 4800 units Work out Marginal & Absorption Profits
Exercise 2