Last month a manufacturing company's profit was $2,000, calculated using absorption costing principles. If marginal costing principles had been used, a loss of $3,000 would have occurred. The company's fixed production cost is $2 per unit. Sales last month were 10,000 units.
What was last month's production (in units}?
________units
Absorption costing profit = $2,000 > Marginal Costing profit = $(3,000)
Therefore Production > Sales by $5,000
$5,000 = OAR x number of units change in inventory
$5,000 = $2 x number of units change in inventory
Therefore number of units change in inventory = $5.000/$2=2,500
If Sales = 10,000 units, therefore Production = Sales + 10,000 units = 12,500 units.
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