CIMA BA2 · Chapter 4 · Question 4 of 8
A company makes one product with the following budgeted data: Selling price $40 per unit Variable production cost $14 per unit Variable selling cost $3 per unit sold Fixed production overheads $180,000 (absorbed on budgeted production of 20,000 units) Fixed administration costs $50,000 In the period, 22,000 units were produced and 19,000 units were sold. There was no opening inventory and all actual costs were as budgeted. What is the profit for the period under absorption costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $234,000
Explanation
Absorption rate = $180,000 / 20,000 = $9 per unit, so full production cost = $14 + $9 = $23. Sales $760,000 less cost of sales (19,000 x $23 = $437,000), plus over-absorbed overhead ((22,000 - 20,000) x $9 = $18,000), less variable selling costs (19,000 x $3 = $57,000) and administration $50,000 = $234,000. Check: marginal costing profit is $207,000, and inventory rose by 3,000 units x $9 = $27,000, giving the same $234,000.
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