00:01
Now in the given question, profit as per absorption costing method is said to be 2000.
00:17
It's of 2000 and if marginal costing has been used, there would have been a loss of 3000.
00:36
So it is a loss.
00:38
So the difference between absorption costing profit and marginal costing profit is of 5 ,000.
00:46
Now these 5 ,000 is because of the fixed production cost.
00:53
Why? because in absorption costing, the fixed production cost considered as production cost.
01:03
And in marginal costing, they are considered as period cost.
01:10
If there is a production cost that is fixed, then in absorption costing, it is considered as a part of product cost and in case of marginal costing it is considered as period cost and these different is just because of these only the consideration of fixed production cost as product cost and period cost now this 5 ,000 difference is because now see whenever absorption costing method is used what happens the fixed production cost is charged per unit basis that means the number of unit you are selling, in those units only you will charge this fixed production cost.
02:10
So product, per product you can say rate per product or unit in absorption costing.
02:27
And in marginal costing, this fixed production cost is considered as period cost and they are charged at a time.
02:42
Like say for example, if fixed production cost is of 10 ,000 rupees, okay, and the company has sold, let's take for example 5 ,000 units and it has produced 10 ,000 units, then as per absorption costing method, this 10 ,000 charge will be how much? first of all, in absorption, what we are, what we will be doing, we will be finding the rate per unit for this fixed cost.
03:23
So rate per unit will be 10 ,000 is the cost.
03:31
Let's take dollar 10 ,000 is the cost.
03:33
And they have produced total 10 ,000 units.
03:37
So their rate per unit is going to be $1 per unit...