ACCA MA · Chapter 7 · Question 3 of 11
A company's profit for a period under marginal costing was $62,000. Opening inventory was 1,200 units and closing inventory was 900 units. The fixed production overhead absorption rate is $5 per unit. What was the profit under absorption costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $60,500
Explanation
Inventory fell by 1,200 - 900 = 300 units. When inventory falls, absorption costing releases fixed overheads from opening inventory into this period's cost of sales, so its profit is lower. Absorption profit = 62,000 - (300 x 5) = $60,500.
More Absorption and marginal costing MCQs
- Q5Budgeted production was 10,000 units, with budgeted fixed production overheads of $80,000, absorbed per unit. Actual production was 11,000…
- Q6Which of the following is an argument in favour of marginal costing?
- Q7Which of the following statements about absorption costing is correct?
- Q8If there is no opening or closing inventory in a period, how does absorption costing profit compare with marginal costing profit?
- Q9A company produced 8,000 units and sold 7,000 units in its first period. Variable production cost is $14 per unit, and fixed production…