CIMA BA2 · Chapter 4 · Question 3 of 8
Opening inventory was 3,000 units and closing inventory was 1,800 units. The fixed production overhead absorption rate has been $8 per unit in both periods. Profit for the period under marginal costing was $62,000. What was the profit under absorption costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $52,400
Explanation
Inventory fell by 3,000 - 1,800 = 1,200 units. Under absorption costing, fixed overhead brought forward in the opening inventory is released into cost of sales, so absorption profit is lower by 1,200 x $8 = $9,600. Absorption costing profit = $62,000 - $9,600 = $52,400.
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