ACCA MA · Chapter 7 · Question 9 of 11
A company produced 8,000 units and sold 7,000 units in its first period. Variable production cost is $14 per unit, and fixed production overheads were $48,000 (equal to budget, which was based on 8,000 units of production). What is the value of closing inventory under absorption costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $20,000
Explanation
Fixed OAR = 48,000 / 8,000 = $6 per unit, so full production cost = 14 + 6 = $20 per unit. Closing inventory = 8,000 - 7,000 = 1,000 units x $20 = $20,000. Under marginal costing it would be 1,000 x 14 = $14,000. Using sales volume to calculate the OAR gives the incorrect $20,857.
More Absorption and marginal costing MCQs
- Q11In a period, a company produced 10,000 units. Profit under absorption costing was $45,000 and profit under marginal costing was $51,000…
- Q1Under marginal costing, how is finished goods inventory valued?
- Q2Finished goods inventory increased by 500 units during a period. The fixed production overhead absorption rate is $8 per unit. How will…
- Q3A company's profit for a period under marginal costing was $62,000. Opening inventory was 1,200 units and closing inventory was 900 units…
- Q4A product has the following data per unit: selling price $40, direct materials $12, direct labour $8, variable production overhead $3…