CA Inter P4 · Chapter 13 · Question 7 of 10
In a period with no opening stock, a company produced 10,000 units and sold 8,500 units. Fixed production overheads were ₹3,00,000. Compared with marginal costing, profit under absorption costing will be:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Higher by ₹45,000
Explanation
Fixed overhead per unit = ₹3,00,000 / 10,000 = ₹30. Under absorption costing, closing stock of 1,500 units carries 1,500 x ₹30 = ₹45,000 of fixed overhead to the next period. Under marginal costing the full ₹3,00,000 is charged in this period. Absorption costing profit is therefore higher by ₹45,000.
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