ACCA MA · Chapter 7 · Question 2 of 11
Finished goods inventory increased by 500 units during a period. The fixed production overhead absorption rate is $8 per unit. How will the profit under absorption costing compare with the profit under marginal costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Absorption costing profit will be $4,000 higher
Explanation
When inventory increases, absorption costing carries forward some fixed production overhead in closing inventory, so its profit is higher. Difference = change in inventory units x fixed OAR per unit = 500 x 8 = $4,000.
More Absorption and marginal costing MCQs
- Q4A product has the following data per unit: selling price $40, direct materials $12, direct labour $8, variable production overhead $3…
- 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?