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When opening inventory was 8,500 litres and closing inventory was 6,750 litres, a firm had a profit of $62,100 using marginal costing.

Assuming that the fixed overhead absorption rate was $3 per litre, what would be the profit using absorption costing?

$______

Chapter9AbsorptionandmarginalCosting

As inventory decreases over the period, the cost of sales will be higher with absorption costing, since they will include fixed overhead in the opening inventory now sold. The extra cost of sales (and thus reduction in profit) = (8,500 - 6,750) x $3 = $5,250.

This means that since profit will be lower with absorption costing by $5,250, the absorption costing profit will be $(62,100 - 5,250) = $56,850.

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What does an adverse variable overhead efficiency variance indicate and what might be the cause?

Explain briefly the possible causes of

(i) A favourable material usage variance

(ii) A favourable labour rate variance

(iii) An adverse sales volume contribution variance.

What is the relationship between the labour efficiency variance and the variable overhead efficiency variance? Why might the monetary value be different?

Explain the meaning and relevance of interdependence of variances when reporting to managers.

A balanced scorecard measures performance 什om four perspectives: customer satisfaction, growth, financial success and process efficiency. Briefly explain these processes.

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