ICAEW BIP · Chapter 2 · Question 6 of 12
Product R has the following unit costs: Direct materials £18 Direct labour £11 Variable production overhead £4 Fixed production overhead £9 Variable selling cost £2 At what cost per unit would closing inventory of product R be valued under absorption costing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) £42
Explanation
Absorption costing values inventory at full production cost: direct materials, direct labour, variable production overhead and fixed production overhead. £18 + £11 + £4 + £9 = £42. Selling costs are never included in inventory. £33 would be the marginal costing valuation.
More Overheads, absorption and marginal costing MCQs
- 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…
- Q11Under activity-based costing, which of the following is most likely to be the cost driver for the costs of the purchasing department?
- Q12Over-absorption of production overheads happens when: