Hello
I can't understand the logic behind this exercise. I know that the difference in Profit between costing systems is related to how each costing system treats MFC. Thus, wouldn't the difference be the FG closing * MFC/unit under TFC - FG closing * MFC/unit under FCPC? I'm a bit confused.
Thank you for your attention in advance
In reply to Filipa Luisdotter Hansén Mesquita
Re: Exam 21/22 S2 - ex.2
Hello Filipa,
That question has been answered before in the forum, so I'll paste the same answer I gave before:
There is no information missing. In 2 i. you can think from the perspective of manufacturing fixed costs. You need to look at the unsold units that were produced within the period. Since the company uses LIFO, the 1 000 units from the opening inventory will still be in the closing inventory.
Comparing TFC to FCPC, you need to look at the Manufacturing Fixed Costs from the 5 000 unsold units in both scenarios. Under TFC, all MFC are considered Product Costs -> 30€ * 5 000 = 150 000 €
But under FCPC, only a part of the MFC are considered Product Costs -> 30€ * 5 000 * 80% = 120 000 €
Under FCPC you'll obtain a lower by 30 000€
In ii, under variable costing, the 150 000 € that were considered Product Costs in TFC would now be considered Period Costs and recorded in the P&L as UROH, thus the result would be lower by that amount.
Good study!
That question has been answered before in the forum, so I'll paste the same answer I gave before:
There is no information missing. In 2 i. you can think from the perspective of manufacturing fixed costs. You need to look at the unsold units that were produced within the period. Since the company uses LIFO, the 1 000 units from the opening inventory will still be in the closing inventory.
Comparing TFC to FCPC, you need to look at the Manufacturing Fixed Costs from the 5 000 unsold units in both scenarios. Under TFC, all MFC are considered Product Costs -> 30€ * 5 000 = 150 000 €
But under FCPC, only a part of the MFC are considered Product Costs -> 30€ * 5 000 * 80% = 120 000 €
Under FCPC you'll obtain a lower by 30 000€
In ii, under variable costing, the 150 000 € that were considered Product Costs in TFC would now be considered Period Costs and recorded in the P&L as UROH, thus the result would be lower by that amount.
Good study!