Profit Reconciliation Formula

Profit Reconciliation Formula

Absorption and marginal cost profit difference may be reconciled by the following formulas. There are two different formula used i.e. one for stock increase and other for stock level decreased

Absorption Cost profit = Marginal cost profit + stock level increased during year

Absorption Cost profit = Marginal cost profit - stock level Decreased during year

Example (Stock Increased)

Marginal costing profit = 45,000

Opening Stock level = 40,000

Closing Stock Level = 45,000

Calculate absorption costing profit?

Solution

Absorption Cost profit = Marginal cost profit + stock level increased during year

= 45,000 + 5000

= 50,000

Example (Stock Decreased)

Marginal costing profit = 50,000

Opening Stock level = 40,000

Closing Stock Level = 30,000

Calculate absorption costing profit?

Solution

Absorption Cost profit = Marginal cost profit - stock level Decreased during year

=50,000-10,000

=40,000