ICAEW BIP · Chapter 2 · Question 4 of 12
In its first period of trading, Bexley Ltd produced 24,000 units and sold 21,000 units. The fixed production overhead absorption rate was £6 per unit. Profit under marginal costing was £142,000. What was the profit under absorption costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) £160,000
Explanation
Inventory increased by 24,000 - 21,000 = 3,000 units. Under absorption costing, 3,000 x £6 = £18,000 of fixed production overhead is carried forward in closing inventory instead of being charged against this period's profit. Absorption costing profit = £142,000 + £18,000 = £160,000.
More Overheads, absorption and marginal costing MCQs
- Q6Product R has the following unit costs: Direct materials £18 Direct labour £11 Variable production overhead £4 Fixed production overhead…
- Q7In a period when inventory levels fall, how will reported profit under absorption costing compare with reported profit under marginal…
- Q8Which of the following is an argument in favour of using marginal costing for internal reporting?
- Q9Stanway Ltd makes one product, which sells for £60. Variable production cost is £22 per unit. Budgeted fixed production overheads are…
- Q10A company uses activity-based costing. Set-up costs for the period are £84,000 and there are 120 set-ups. Product P is made in batches of…