Worked example: Marginal and absorption costing compared TLF plc manufactures a single product, the Claud. The following figures relate to the Claud for a one-year period. The normal level of activity for the year is 800 units. Fixed costs are incurred evenly throughout the year, and actual fixed costs are the same as budgeted. A predetermined overhead absorption rate is used for the year. There were no inventories of Claud at the beginning of the year. In the first quarter, 220 units were produced and 160 units sold. Requirements For the first quarter: (a) calculate the fixed production costs absorbed by Clauds if absorption costing is used (b) calculate inventory values per unit using both absorption costing and marginal costing (c) calculate the under/over absorption of overheads (d) calculate the profit using absorption costing (e) calculate the profit using marginal costing (f) explain why there is a difference between the answers to (d) and (e)