QWE Ltd manufactures a single product with a variable production cost of £20. Fixed production overheads are £110,000 and fixed selling and distribution costs are £45,000. The product is sold for £35 and QWE also incurs a variable selling and distribution cost of £2/unit. Budgeted production was 50,000 units and actual production and sales were 48,000 units. The reported actual profit using marginal costing will be:

Question

BlackTom AI · Accepted Answer

We start by identifying the components of marginal costing for QWE Ltd. 
First, determine the variable cost per unit: variable production cost is £20 and variable selling/distribution cost is £2, so total variable cost per unit = £20 + £2 = £22. 
Next, determine the selling price per unit: £35. Therefore, the contribution per unit = selling price − total variable cost = £35 − £22 = £13. 
The actual production and sales volume is 48,000 units, so total contribution = 48,000 × £13 = £624,000. 
Now account for fixed costs under marginal costing: fixed production overheads = £110,000 and fixed selling/distribution costs = £45,000, giving total fixed costs = £110,000 + £45,000 = £155,000. 
Profit under marginal costing = total contribution − fixed costs = £624,000 − £155,000 = £469,000. 
Option analysis:
- £469,000: This matches the calculated marginal costing profit, so it is correct. 
- £495,000: This would require a higher contribution or lower fixed costs; none of the given data support a £495,000 result. 
- £565,000: This would imply a much larger contribution or smaller fixed costs, inconsistent with the per-unit variable costs and volumes provided. 
- £595,000: Similarly, not supported by the per-unit variables and the fixed cost totals. 
- £610,000: Also not aligned with the fixed costs or the calculated contribution at 48,000 units.

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